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Akistan’s economy is facing a severe and multilateral crisis due to financial instability, a critical currency and unstable debt burden. The main reasons for this problem are in decades of debt -fired growth, lack of structural reform and permanent financial mismanagement. Other governments have preferred to borrow short -term loans on long -term planning of export -led growth and are involved in stupid expenses, causing horrific loans, IMF bailouts and investors’ confidence. There is a permanent harvest.
Despite the rush, critical structure and institutional reforms needed to live up to the major economic sectors, improve tax collection and enhance governance. The results of this neglect are clear. These include a dangerous increase in both domestic and external debt, which poses a serious threat to economic stability and public financial affairs.
As of November 2024, the government’s domestic debt stood at Rs 48,895 billion, an increase of 17.7 % over November 2023. The government deposited an additional amount of Rs 7,356 billion in domestic debt in just one year. As a result of taking such careless loans, the loan service now uses about 75 % of federal income.
In the financial year 2023-24, the government allocated Rs 7.5 trillion (Rs 8.2 trillion) for loan service, which has been very low for growth and social services. Compared to November 2022, domestic debt increased by 15,243 billion or 47 %. The speed is clearly unstable. Although the borrowing pace during the last 12 months (November 2023 to November 2024 to November 2024) has been slightly slow (at 17.7 % compared to 23.4 % of the previous year).
An error of domestic loans highlights some important components that identify structural flaws in Pakistan’s financial management. Permanent debt, which includes long -term equipment, increased from Rs 29,944 billion in November 2023 to Rs 35,646 billion in November 2024, a significant increase. Floating loan, which consists of short -term borrowing devices, reached Rs 10,248 billion before decreasing in June 2024 in November 2024. Uncontrolled loan, which contains the responsibilities of Panson and the Provincial Funds, but includes fluctuations. 2,851 billion in November 2024.
Depending on short -term borrower devices, the market treasury bill increased from Rs 7,543 billion in November 2023 to Rs 9,551 billion in November 2024. It highlighted the permanent shortage of cash flow to manage the cost. Controlling short -term loan equipment is increasing the cost of borrowing and exposing the economy with maximum refining risks.
As of September 30, the external debt was $ 133.4 billion, which reflects a 3 % increase during September 2023. In the last two years, external debt has increased by 5 %. It apparently masks the fundamental problem of failure to create a foreign exchange to fulfill the apparently moderate growth loan responsibilities.
The proportion of GDP from external debt is currently 34.5 %, which is slightly better than recent years but is still dangerous due to the slowdown of economic growth. In June 2024, the government’s total debt increased to $ 79.3 billion.
In September 2024, borrowing from the International Monetary Fund increased by $ 9.2 billion, which relies on a growing dependence on the last resort lender to strengthen the economy. Foreign exchange responsibilities increased to $ 12.04 billion, and further pressures foreign reserves. The strategy to secure the rollover from China, Saudi Arabia and the United Arab Emirates has helped delay the pre -default threat, but long -term stability has led to a serious concern.
Between July and November 2024, foreign economic assistance was largely in the form of loans, not a grant. The multilateral supply included $ 1.65 billion from the Asian Development Bank, $ 1.52 billion from the International Development Association and $ 240.7 million from the Islamic Development Bank. Bilateral loans included $ 122.2 million from China, from France .3 66.3 million and $ 76 million from Saudi Arabia. In addition, Pakistan faced 77 3.77 billion foreign trade loans.
On the outer front, we need to discuss the period of grace with lenders to handle loans maturity, and to reducing dependence on high interest loans and by the climate financing and dospur bonds Axis. Exports need to be diversified to restore economic growth.
In the first five months of 2024-25, the distribution against foreign economic aid estimates exceeds $ 19.39 billion, which reflects heavy dependence on external arrival. This excessive dependence on foreign lenders is not only increasing the responsibilities of serving external loans but also limiting our financial sovereignty.
The results of Pakistan’s growing debt burden are serious and far -reaching. The most quick impact of this is the increasing price of loan service, which is a significant part of government income away from development projects. In the financial year 2024-25, the government has allocated Rs 9.775 trillion for loan service, which has significantly reduced the funds available for social services, infrastructure and economic growth.
Domestic debt service has increased rapidly, with Rs 3.2 trillion allocated in the first half of the fiscal year 2024-25. External debt service needs $ 4.8 billion in payment within the same period. The maturity of loans coming in 2025, which includes paid more than 7 billion in Eurobonds and multilateral loans, is an important financial challenge.
The decline in the exchange rate is another major concern as it increases the cost of imports, reinforces inflation and reduce the purchase power of ordinary citizens. In the past, high inflation rates have already affected the power of the people’s purchase, and this has significantly eliminated the real wages. Essential commodities such as wheat, sugar and fuel have been observed more than 40 % of prices in the previous year alone, which further burden low -income groups.
Investors’ confidence is in danger due to permanent financial mismanagement. The level of high debt produces uncertainty in the financial markets, resulting in the flight of the capital and directly reduces foreign investment (FDI). In 2024, the arrival of FDI fell to $ 170 million, while in 2023, a decline of $ 252 million, which was 32 percent.
On December 31, 2023, the total foreign currency reserves were 12,673 million. The amount increased to $ 16,052.10 million by January 31, 2025, but was lower than the growing needs. Strict simplicity measures proposed by the IMF are limited to the public sector costs and growth. The development of financial and infrastructure has been particularly affected, due to lack of funds, significant development projects have been delayed.
We need a comprehensive and sustainable financial strategy to expand the tax base to tackle financial challenges. Currently, only 2 % of Pakistani taxpayers are registered. By reducing digitalization and discounts, expanding the tax base can generate significant revenue. At the same time, unnecessary costs should be greatly reduced. This should include the energy sector.
Damage to loss or loss of privatization is another necessary government ownership. Institutions like PIA, Steel Mill are a permanent drain on public resources.
On the outer front, the period of grace with lenders for climate financing and climate financing and climate financing and climate support and debt management and axis management to reduce dependence on high interest loans. Need to discuss. In order to restore economic growth, exports need to diversify and attract investment. Key export sectors such as textile, IT and agriculture can reduce trade deficit. Trade agreements with the European Union and GCC countries should be given priority. Tax holidays and low rules can attract FDI.
Reforms in governance, digitalization of public procurement, effective anti -corruption organizations, and rapid settlement of conflicts can restore investors’ confidence. Tariff rational करण can achieve maximum efficiency of the energy sector, reduce line losses and invest in solar energy.
Finally, political stability is essential to ensuring reforms beyond the electoral cycle. We are at risk of stagnation without these steps. The defective and delay will only deepen this crisis, and will put an unprecedented debt and social unrest on the coming generations.
Dr. Ikramol Haq, the author and the Supreme Court’s lawyer, is an affiliated teacher in the Lahore University of Management Sciences.
Abdul Rauf Shakuri is a corporate lawyer based in the United States.
