Pakistan is facing external debt repayments of $25.9 billion in FY2025-26, marginally lower than last year’s $26.3 billion, according to official projections shared with analysts by the State Bank of Pakistan (SBP) this week.
Despite the hefty debt servicing requirements, the government is hoping to build foreign exchange reserves to $17.5 billion by June 2026, leveraging stronger remittance inflows, planned commercial borrowing, and recent credit rating upgrades.
Of the total external obligations, around $16 billion are expected to be rolled over based on assurances given to the International Monetary Fund (IMF) by major bilateral and multilateral creditors. The remainder consists of $6 billion in principal repayments and $4 billion in interest payments.
Remittances
A key support to the external account is Pakistan’s robust remittance performance. Workers’ remittances rose to $38.3 billion in FY25, and authorities project this figure to surpass $40 billion in FY26, supported by revised incentive schemes. Officials say new policy efforts are underway to sustain and further boost this momentum, which has become a critical pillar of external financing.
Reserves Strategy
Pakistan began the ongoing fiscal year with $14.5 billion in SBP reserves, bolstered by an active policy of foreign exchange market interventions. The central bank has purchased nearly $20 billion from the market over FY23–FY25, helping to build reserves and stabilize the exchange rate without disrupting market dynamics.
The central bank is now targeting $15.5 billion in reserves by December 2025, and $17.5 billion by June 2026, even after accounting for debt repayments. While optimistic, this outlook is underpinned by an improved macroeconomic backdrop, a stronger debt profile, and credit rating upgrades from two global agencies as well as a third anticipated upgrade. These developments are expected to pave the way for resuming sovereign bond issuance, including Eurobonds and Sukuk, aimed at diversifying Pakistan’s financing sources.
Trade and Current Account Outlook
Pakistan has projected a modest current account deficit between 0% and 1% of GDP in FY26. While non-oil imports surged 16% and total imports rose to $59.1 billion in FY25, policymakers believe the impact can be managed with a targeted oil price assumption of $70 per barrel for FY26, despite recent volatility in global energy markets.
The SBP has emphasized the importance of balancing reserve accumulation with import needs to support a gradually recovering economy.
Consumer Lending, Auto Finance, and Housing Push
While the SBP has made minor adjustments to consumer financing rules, it remains cautious on relaxing the Rs. 3 million cap on auto financing, citing risks to the current account from increased vehicle imports. However, auto financing has already seen a notable rise, underscoring the need for a calibrated policy approach.
On the housing front, the Naya Pakistan Housing Finance Scheme, developed in coordination with SBP, has received approval from the Economic Coordination Committee (ECC) and awaits cabinet ratification. Once cleared, the scheme would be rolled out officially through banks, offering a fresh boost to the construction and housing sector.
FX Market Discipline
Efforts to combat illegal foreign exchange trade have yielded results, with a narrowing of the interbank-open market premium in recent weeks. The SBP confirmed it would continue collaborating with law enforcement agencies to curb speculative and unauthorized currency activities.
Despite external vulnerabilities and rising imports, Pakistan’s policymakers are betting on resilient remittance inflows, judicious foreign exchange interventions, and improved investor sentiment to navigate FY26’s financing needs and further stabilize the economy.