Pakistan’s economic problems increase, country stuck in ‘Debt Trap’ due to short-term loans

Pakistan’s weak external financial structure is becoming a threat to the country’s economic stability. Experts and policymakers say dependence on foreign debt exposes the country to frequent crises. Business representatives and economists say that even though reserves have improved recently, it does not address the structural weaknesses inherent in the debt repayment framework.

Short-term debt pressure
According to a report, most of Pakistan’s external debt has short tenure, making it difficult for the government to absorb economic shocks. Raja Wasim Hasan, vice president of Pakistan Industrial and Traders Union Front, said that friendly countries should be requested to immediately extend the loan period. He warned that without restructuring the country may have to face balance of payments crises again and again.

According to the data, the country’s external debt stood at about $134.5 billion as of September 2025, and a large amount remains to be repaid in the near future. Reserves reached more than $21 billion in January 2026, but experts say the bulk of this came from temporary multilateral and bilateral assistance, while responsibilities for 2026 and beyond remain burdensome.

Political and economic challenges
Hassan said diplomatic efforts with Gulf countries, investment talks from Saudi Arabia and the UAE, and improving relations with Washington are positive. But he warned that geopolitical circumstances are unstable and cannot be a substitute for internal strength. Competitiveness, high productivity and strong financial buffers are essential for sustainable security.

Economists’ advice
The senior economist also warned that rollovers and deposits alone are not a permanent solution. Along with debt management, tax reforms, energy pricing and improvements in industrial production are necessary. Businesses are cautious due to tight financial conditions and growth rate being less than five percent. Experts have advised to immediately expand the tax base, reduce power sector deficit, increase value-added exports and attract strong foreign investment.