Islamabad: Pakistan's debt indicators presented a mixed picture in the fiscal year 2026, with improvements in some areas and deteriorations in others, as detailed in a recent press release. The country's Debt to GDP ratio decreased to 68.3% as the debt grew at a slower pace than the nominal GDP, while the External Debt to GDP ratio fell to a nine-year low of 21.5%. However, external debt servicing to total exports worsened to 46% during the same period.

According to JS Global, the Debt to GDP ratio, calculated using both the Ministry of Finance's and the International Monetary Fund's (IMF) methodologies, showed improvement. The IMF's calculation, which includes other foreign exchange liabilities, placed the ratio at 69.5%, marking the lowest in eight years. This improvement was partly attributed to the repayment of UAE deposits and subsequent financing from Saudi Arabia.

Meanwhile, Pakistan's External Debt to GDP ratio also experienced a significant decline. The Ministry of Finance reported a ratio of 21.5%, while the IMF's calculation stood at 22.5%. This reduction is the lowest in nine years, aided by the appreciation of the Pakistani Rupee against the US dollar and strategic financial maneuvers involving UAE and Saudi Arabia.

However, not all indicators showed positive trends. The external debt servicing to total exports ratio rose to 46% in FY26 from 34% in FY25. This increase suggests a higher vulnerability in meeting debt service obligations due to stagnant export revenues. The external debt to total exports ratio also increased to 240%, reflecting a faster rise in external debt compared to export growth.

Furthermore, the external debt servicing to foreign exchange reserves was estimated at 115% for FY26. This ratio, while deteriorating due to higher debt servicing from UAE deposit repayments, is expected to improve significantly in FY27 as foreign exchange reserves are projected to surpass $20 billion by June 2027.

Overall, while Pakistan's fiscal metrics showed some signs of improvement, challenges remain, particularly in the balance of external debt servicing relative to exports and reserves.