Pakistan paid around $16 billion in interest on foreign loans over the past four years, State Bank Governor Jameel Ahmad said. The payments averaged roughly $4 billion annually.
Speaking after Monday’s monetary policy announcement, Ahmad put the country’s external debt at approximately $107 billion. He said it already exceeded $100 billion in 2022.
The governor outlined how market dollar purchases helped Pakistan meet interest obligations while rebuilding its foreign exchange reserves. He also projected a lower annual interest bill and further reserve growth.
Market purchases funded most interest payments
Ahmad said Pakistan financed around $10 billion to $11 billion of its interest payments through dollars the SBP purchased from the market. It did not use fresh loans to fund that portion.
The central bank bought more than $30 billion from the market during the period, he said. These purchases also supported the recovery in its reserves.
Reserves stood near $3 billion in early 2023, enough to cover only two weeks of imports. They now stand at approximately $21.5 billion, equivalent to around three months of import cover.
Ahmad said external debt increased by only $5 billion to $6 billion over the past four years. He described the annual increase as roughly $1 billion to $1.25 billion.
By comparison, external debt grew by approximately $6.5 billion annually between 2015 and 2022.
He also cited a hypothetical debt figure of around $116 billion while discussing the cumulative burden of interest payments.
Annual interest bill could fall below $3 billion
The governor said Pakistan’s external debt composition had improved alongside the slower pace of borrowing.
Multilateral and bilateral lenders now account for approximately 80% of external debt, compared with 55% in early 2023. He named institutions including the World Bank and Asian Development Bank.
Ahmad expects annual foreign loan interest payments to fall below $3 billion next year. That would bring the bill below the roughly $4 billion annual average recorded over the past four years.
The SBP aims to increase foreign exchange reserves to $23 billion by December 2026. Its subsequent target stands at $25 billion by June 2027.
Remittances could help support the external account. The governor said first-quarter inflows reached $10.9 billion, prompting an upward revision in the annual forecast.
The central bank now expects remittances of $45 billion this fiscal year, against its earlier estimate of $44 billion.
SBP raises policy rate to 12%
The remarks followed the SBP’s decision to raise its policy rate by 50 basis points to 12%.
Nine of the monetary policy committee’s 10 members supported the increase. One favoured a larger rise.
Higher energy costs and domestic wheat prices contributed to the decision. September inflation reached 10.3%, exceeding the committee’s expectations.
The committee retained its fiscal-year current account deficit forecast of zero to 1% of GDP. However, it flagged risks from elevated commodity prices, tighter international financing conditions and supply constraints.
