‘Average Rate is 4%’: Finance Ministry rejects claims of 8% interest on external debt

• Ministry clarifies total external debt stands at $138 billion, but government debt is $92 billion

• Says nearly 75% of external public debt is concessional, with minimal commercial loans

• Interest payments rose from $1.99B in FY2022 to $3.59B in FY2025, an 80.4% increase

 ISLAMABAD: The Finance Ministry of Pakistan on Sunday dismissed as “misleading” recent reports claiming that Pakistan is paying up to 8 percent interest on external loans, clarifying that the overall average cost of external public debt is around 4 percent.

In a clarification, the ministry said media coverage of the country’s external debt and associated interest payments required contextual explanation to ensure an accurate understanding of Pakistan’s debt profile.

Pakistan’s External Debt Profile Remains Predominantly Concessional and Long-Term

The Ministry of Finance wishes to clarify certain assertions made in a recent press commentary regarding the country’s external debt position and associated interest payments. The figures presented…

— Ministry of Finance, Government of Pakistan (@Financegovpk) February 22, 2026

“Pakistan’s total external debt and liabilities currently stand at $138 billion. This figure includes a broad mix of obligations such as public and publicly guaranteed debt, debt of Public Sector Enterprises (both guaranteed and non-guaranteed), bank borrowings, private-sector external debt, and intercompany liabilities to direct investors,” the statement said. “It is therefore important to distinguish this aggregate figure from External Public (Government) Debt, which amounts to approximately $92 billion.”

The ministry noted that Pakistan has long relied on external loans to bridge persistent gaps in public finances and foreign exchange reserves, driven by a narrow tax base, chronic trade deficits, rising debt-servicing costs, and repeated balance-of-payments pressures. Successive governments have turned to multilateral and bilateral lenders, including the International Monetary Fund, World Bank, and Asian Development Bank, to support budgetary needs and strengthen reserves.

Of the total External Public Debt, nearly 75 percent comes from concessional and long-term financing obtained from multilateral institutions (excluding the IMF) and bilateral development partners. Only about 7 percent consists of commercial loans, and another 7 percent relates to long-term Eurobonds. “In light of this composition, the claim that Pakistan is paying interest of ‘up to 8 percent’ is misleading. The overall average cost of External Public Debt is approximately 4 percent, reflecting the predominantly concessional nature of the borrowing portfolio,” the ministry added.

Regarding interest payments, public external debt interest outflows rose from $1.99 billion in FY2022 to $3.59 billion in FY2025, representing an increase of 80.4 percent, not 84 percent as previously reported. In absolute terms, interest payments increased by $1.60 billion, not $1.67 billion.

According to State Bank of Pakistan records, debt servicing payments during this period included:

IMF: $1.50 billion total, $580 million interest

Naya Pakistan Certificates: $1.56 billion total, $94 million interest

Asian Development Bank: $1.54 billion total, $615 million interest

World Bank: $1.25 billion total, $419 million interest

External commercial loans: nearly $3 billion total, $327 million interest

“While interest payments have increased in absolute terms, this rise cannot be attributed solely to an expansion in the debt stock,” the ministry said. “Although the overall debt stock has increased slightly since FY2022, the additional inflows primarily originated from concessional multilateral sources and the IMF’s Extended Fund Facility (EFF) under the ongoing IMF-supported program.”

Pakistan secured a $7 billion IMF bailout in September 2024 as part of Prime Minister Shehbaz Sharif’s efforts to stabilize the economy following a near-default in 2023. Since then, the government has worked to boost trade and attract foreign investment to consolidate recovery.

The ministry also noted that the rise in interest payments reflects global interest rate dynamics. Following the 2021–22 inflation surge, the US Federal Reserve raised its federal funds rate from 0.75–1.00 percent in May 2022 to 5.25–5.50 percent by July 2023. Although rates have moderated to around 3.75 percent, they remain significantly higher than 2022 levels.

“The government remains committed to prudent debt management, transparency, and continued strengthening of Pakistan’s macroeconomic stability,” the Finance Ministry concluded.