Is Pakistan drowning in debt?

PAKISTAN’S economy faces critical challenges including high public debt, inflation, fiscal deficits, structural inefficiencies and political instability. Pakistan’s external debt has reached over $125–130 billion, with annual repayments often exceeding available foreign reserves, creating a persistent risk of default and reliance on IMF bailouts. The interest-to-revenue ratio has climbed to around 60%, crowding out spending on development and social services. Low tax collection-approximately 10% of GDP exacerbates fiscal deficits, limiting the government’s ability to finance infrastructure, education and healthcare. Inflation has been a major concern, peaking at 42% in 2025 with food and fuel prices disproportionately affecting low-income households. Rising fuel and edible oil prices, partly due to global shocks like the Russia-Ukraine war and now Iran-Israel-USA war, have multiplier effects across electricity, transportation and industrial sectors, further straining household consumption and increasing poverty. Pakistan’s economy suffers from protectionist policies, cumbersome regulations and inefficient state-owned enterprises which continue to generate significant losses, depleting public resources, while the growth model remains heavily consumption-driven, leading to persistent trade deficits (e.g. $24 billion in 2024) and vulnerability to import shocks. Insufficient investment in human capital and technological advancement limits productivity and competitiveness. Frequent political disputes, weak institutions, deep state and Establishment influence create uncertainty that hinders long-term economic planning and reforms. Legal disputes and constitutional crises delay critical policy implementation in taxation, energy and social welfare, undermining investor confidence and economic stability. Economic challenges have direct social consequences. The poverty rate has increased by 3.7–4% due to natural disasters and economic shocks, pushing millions into hardship. R