Moody’s Investors Service has warned that Pakistan’s interest payments are projected to consume nearly 40% of total government spending by FY2025, compared to about 25% in FY2021, posing significant fiscal challenges.
The assessment was part of Moody’s report titled “2025 Outlook – Stable as economic risks recede, geopolitical and trade risks persist”. The report highlighted that Pakistan’s recent $7 billion IMF programme aims to alleviate liquidity pressures but comes with stringent conditionalities, which could exacerbate social risks.
Moody’s noted that concessional financing alone is insufficient to replace maturing sovereign debt, particularly for vulnerable economies like Pakistan.
Moody’s emphasized that Pakistan’s government debt affordability will remain weaker than pre-pandemic levels. The country is among the most vulnerable in the Asia-Pacific region (APAC) to food security crises, alongside other frontier markets such as Bangladesh.
The report also flagged local currency financing needs exceeding 10% of GDP in Pakistan and Zambia, underlining significant local and foreign currency liquidity risks, which remain key drivers of defaults.
Globally, debt affordability in advanced economies is expected to remain stronger than pre-pandemic levels by 2025, with notable exceptions like the US and France, where affordability is set to decline. However, countries like Greece are anticipated to improve due to deleveraging efforts.
Moody’s also noted a rise in global military spending driven by geopolitical tensions. In Europe, several countries are boosting defense budgets to meet NATO’s 2% of GDP target in response to the perceived threat from Russia. Similarly, India’s defense spending is growing amid ongoing tensions with China and Pakistan.
Although global food prices are expected to remain lower than recent highs, Pakistan, along with other low-rated frontier markets such as Mozambique, Rwanda, and Nicaragua, faces heightened risks of food insecurity. These challenges could further strain Pakistan’s already fragile economic stability.
Moody’s reiterated that meeting multilateral financing conditions, managing rising debt costs, and addressing food security vulnerabilities will remain critical for Pakistan’s economic and social outlook in the coming years.
