Pakistan has been facing a severe economic crisis for years, characterized by increasing external debt, slow growth, and structural issues stemming from poor governance and heavy reliance on external funding. The country’s total external debt has reached about $134 billion, posing a significant burden relative to its GDP. In the fiscal year 2025–26, Pakistan is confronted with the daunting task of repaying external debts amounting to $23-26 billion, including both principal and interest payments.
Recent developments highlight the financial strain on Pakistan, with the United Arab Emirates (UAE) rolling over $2 billion of the country’s debt. This move underscores Pakistan’s dependence on bilateral rollovers from allies like the UAE, Saudi Arabia, and China to avoid immediate default risks. While Pakistan’s foreign exchange reserves have slightly improved to $21.29 billion as of late January 2026, these reserves remain vulnerable to debt maturities and import needs.
The International Monetary Fund’s (IMF) $7 billion Extended Fund Facility (EFF), established in September 2024, has played a crucial role in stabilizing Pakistan’s economy. The IMF’s support, including the Resilience and Sustainability Facility, is contingent on Pakistan implementing reforms such as fiscal discipline and restructuring state-owned enterprises. Despite bilateral commitments totaling approximately $12 billion in rollovers this year, the UAE’s cautious approach in extending debt signals a potential shift towards more commercial terms, away from concessional aid.
Pakistan’s economic challenges are further compounded by its repeated engagements with the IMF, focusing on macroeconomic stability, reserve building, tax reform, and state-owned enterprise restructuring. While there have been improvements in fiscal performance, inflation remains a concern due to energy costs and external shocks. The economy has seen modest growth of around 3%, which falls short of the job creation needed for a rapidly expanding population.
The country is grappling with rising unemployment rates, reaching about 6.9% in 2024-25, with significant increases across various demographics. The lack of job opportunities has led to a surge in emigration among Pakistanis seeking work abroad. The economy’s struggle to generate sufficient employment opportunities is exacerbated by IMF-mandated austerity measures and disruptions like natural disasters affecting key sectors such as agriculture and industry.
