Pakistan’s economy has shown signs of improvement in FY24, with key debt indicators reflecting positive trends. The country’s Debt-to-GDP ratio has fallen to a six-year low of 70%, driven by a nominal GDP increase that has outpaced the rise in debt, primarily due to higher inflation. This marks a significant reduction in the debt burden, indicating stronger economic management.
As per Topline Pakistan research, Pakistan’s External Debt-to-GDP ratio has decreased to 26%, the lowest in six years. This improvement is attributed to a slower increase in foreign currency borrowings compared to local currency borrowings. In FY23, the External Debt-to-GDP ratio stood at 32%, but the latest figures reflect the government’s efforts to manage external liabilities more effectively.
The country’s ability to service its external debt has also improved, with External Debt Servicing to Total Exports falling to 35% in FY24, down from 51% in FY23. This ratio measures how much of Pakistan’s export revenue is used to service its debt, highlighting the reduced vulnerability of the country’s debt service obligations to fluctuations in export proceeds.
However, the External Debt-to-Total Exports ratio, though improved, remains high at 253% for FY24. While this is a decrease from the peak of 314% in FY20, it still underscores the need for further growth in exports to better balance the debt load.
Moreover, the ratio of External Debt Servicing to Foreign Exchange Reserves is estimated at 195% for FY24. This indicates that the country’s debt repayments due within a year are nearly twice the size of its reserves. However, projections for FY25 are more optimistic, with the ratio expected to drop to 89%, based on an anticipated $10 billion in external debt repayments, net of rollovers, and guided by the State Bank of Pakistan.
These improvements in Pakistan’s debt indicators are seen as crucial steps towards enhancing the country’s economic resilience. While challenges remain, particularly in the area of external debt, the government’s efforts to manage debt more effectively are yielding positive results, providing a stronger foundation for future economic stability.
