Pakistan’s external debt nearly doubled to $135.107 billion over the 10 years ending in 2025, rising from $68.673bn in 2015, according to the World Bank’s International Debt Report 2026.
The country’s external debt comprised $107.076bn in public and publicly guaranteed debt, $17.58bn in private non-guaranteed debt and $10.45bn in short-term obligations.
Of the public and publicly guaranteed debt, $56.83bn was owed to multilateral creditors, $42.43bn to bilateral lenders and $7.8bn to private creditors.
China emerged as Pakistan’s largest individual creditor, with outstanding loans of $22.4bn. The World Bank was the second-largest creditor at $19.2bn, followed by the Asian Development Bank (ADB) with $16.83bn.
The report stated that loans from official creditors carried an average maturity of 16 years, a four-year grace period and an average interest rate of 3.6 per cent. In comparison, private credit had a significantly higher average interest rate of 8.6pc, with a three-year repayment period and a one-year grace period.
The Middle East, North Africa, Afghanistan and Pakistan (Menap) region recorded improvements in debt-servicing and interest-payment ratios. However, its external debt-to-gross national income (GNI) ratio increased from 26.7pc to 29.4pc in 2025, marking the largest annual rise among all regions and reflecting continued debt accumulation.
During 2025, China extended the maturity of $2bn in loans to Pakistan, while the International Monetary Fund (IMF) disbursed $2.3bn under its Extended Fund Facility and Resilience and Sustainability Facility programmes to support the country’s long-term economic stability.
The World Bank report also highlighted a sharp increase in external borrowing by low- and middle-income countries (LMICs) in 2025, recording the fastest growth in four years and signalling a renewed return of private creditors to developing economies.
External debt among these countries rose 5.5pc to a record $9.4 trillion as bond issuance recovered, the US dollar weakened and investors became more willing to extend loans. However, the renewed access to international capital markets came with higher borrowing costs, particularly for the poorest economies, which faced some of the most expensive financing conditions in decades.
Debt-servicing payments increased for the fifth consecutive year. Nevertheless, stronger economic growth helped stabilise certain debt ratios, while net long-term debt transfers returned to positive territory after several years of outflows.
External debt grew even faster among countries eligible for International Development Association (IDA) financing, increasing 8.1pc to $1.3tr. Low-income countries recorded an 8.9pc rise, taking their external debt to $262.4bn — the steepest annual increase since 2020.
The depreciation of the US dollar also contributed significantly to the increase. According to the report, currency valuation effects accounted for 28.2pc of the rise in external public and publicly guaranteed debt among LMICs.
For several major borrowers relying on concessional financing, currency-related valuation gains during 2025 offset principal repayments made during the year. In some cases, these gains partially reversed debt reductions achieved through repayments in 2024, resulting in higher reported balances at the end of 2025 despite continued debt servicing.
Private-sector lending, which is more sensitive to financial market conditions, borrowing costs and perceptions of creditworthiness, rebounded strongly in 2025.
Debt owed by LMICs to private creditors increased 5.2pc to $5tr, compared with a modest 0.6pc rise in 2024. The increase reflected higher borrowing from both bondholders and commercial banks and other private lenders. Debt owed to bondholders climbed 5.7pc to $2.4tr, while obligations to commercial banks and other private creditors rose 4.7pc to $2.7tr.
Economic growth across LMICs, measured through gross national income, reached 5.1pc, encouraging lenders to resume financing these economies. Many governments also continued borrowing despite relatively high interest rates, leaving the most financially vulnerable countries facing the greatest borrowing costs.
The growing reliance on private financing further tightened lending conditions for IDA-eligible countries. These economies faced an average interest rate of 8.2pc on new loan commitments in 2025, the highest level since the late 1980s.
The gap between interest rates charged by official creditors and those imposed by private lenders on this group widened considerably over the past decade, increasing from 3.4 percentage points in 2016 to 5.5 percentage points in 2025.
In contrast, countries borrowing from the International Bank for Reconstruction and Development secured more favourable terms on new commitments, with their average interest rate declining to 5.5pc from 5.8pc in the previous year.
The report identified debt-servicing obligations as a continuing source of financial pressure for developing economies. Total debt-servicing payments, covering both principal and interest, increased 1.9pc to $1.4tr in 2025, marking the fifth consecutive annual rise.
Payments to private creditors were the main driver of the increase, with debt-servicing payments to bondholders rising 13.7pc to $363.1bn.
Between 2022 and 2025, LMICs paid approximately $436.1bn more in debt servicing than they received in new financing. However, the trend shifted in 2025, when long-term debt flows moved from a net outflow of $118.4bn in 2024 to a net inflow of $45.4bn.
