Pakistan sinks deeper in debt: Report

New Delhi: While China extended the maturity of $2 billion in loans to Pakistan in 2025, the International Monetary Fund (IMF) provided $2.3 billion in fresh financing under its Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) to strengthen the country’s long-term economic stability, according to Bangkok-based Page 3 News

The report highlights that this increase in debt has serious implications as it came amid a sharp rise in borrowing across low- and middle-income countries (LMICs), whose external debt reached an unprecedented US$9.4 trillion in 2025, highlighting growing financial pressures on developing economies.

External debt among low and middle-income countries increased by 5.5 per cent in 2025, representing the largest annual rise in four years. The surge was driven by increased bond issuance, a weaker US dollar and renewed investor confidence in lending to developing economies, the report further states.

It also highlights that the return of private capital to international markets came at a considerable cost, particularly for the world’s poorest nations, which faced borrowing expenses at their highest levels in decades.

Debt-servicing obligations continued to rise for the fifth consecutive year. Countries eligible for financing from the International Development Association (IDA) experienced an even sharper increase in external debt, which climbed by 8.1 per cent to $1.3 trillion. Among low-income countries, external debt rose by 8.9 per cent to $262.4 billion, the steepest increase since 2020.

LMIC economies also recorded growth of 5.1 per cent in private sector loans , measured by Gross National Income (GNI). The stronger economic performance encouraged lenders to re-enter these markets, while several governments continued to borrow despite relatively high interest rates.

However, a major concern remains that countries with the least capacity to absorb additional debt are facing the highest borrowing costs.

The growing dependence on private financing has made borrowing considerably more expensive for countries eligible for IDA assistance.

While the return of international lending offers some relief to developing economies, the combination of rising debt, expensive private financing and mounting repayment obligations continues to pose a serious challenge to their long-term economic stability, the report added.

ABOUT THE AUTHOR

IANS

[email protected]