Pakistan faces debt wall: Why it has to pay $23 billion this year but still keeps buying weapons

A cobbler waits for customers at his stall in Rawalpindi on June 9, 2025, ahead of the state budget. (Photo by Farooq NAEEM / AFP)

Even as Prime Minister Shehbaz Sharif claims an economic “turnaround,” Pakistan is staring at a staggering USD 23 billion external debt repayment burden this fiscal year. Its total public debt has soared past Rs 76 trillion, and nearly 46 per cent of the federal budget is now consumed by debt servicing alone.

Yet, instead of prioritising economic repair, Pakistan’s military-dominated establishment is busy finalising multi-billion-dollar defence deals with China and Turkey, buying missiles, drones, and warships while begging friendly nations for temporary deposits just to avoid default.

Fiscal time bomb ticking

The new fiscal year, which began on July 1, brings with it the staggering burden of USD 23 billion in external debt servicing – a mix of repayments to international bondholders, commercial banks, and multilateral institutions. According to the Pakistan Economic Survey 2024–25, the country’s total debt stood at Rs 76.01 trillion at the end of March, of which Rs 51.52 trillion (about USD 180 billion) is domestic and Rs 24.49 trillion (USD 87.4 billion) is external.

That USD 87.4 billion in external public debt comprises two components: government external debt and debt obtained from the International Monetary Fund (IMF).

Of the USD 23 billion due this year, USD 12 billion are temporary deposits from “friendly” nation, namely Saudi Arabia (USD 5 billion), China (USD 4 billion), the UAE (USD 2 billion), and Qatar (USD 1 billion), with the expectation that these will be rolled over.

However, if these rollovers fall through, Islamabad will be forced to cough up the entire amount – something its battered economy is not in a position to do.

Even with those deposits secured, Pakistan must still repay about USD 11 billion this fiscal year to multilateral and bilateral creditors, international bondholders, and commercial lenders. Major upcoming payments include USD 1.7 billion in bond repayments, USD 2.3 billion in commercial loans, USD 2.8 billion to multilateral creditors like the World Bank, Asian Development Bank, Islamic Development Bank, and Asian Infrastructure Investment Bank, and USD 1.8 billion in bilateral loan repayments.

Yet, Shehbaz Sharif-led Pakistani government continues to trumpet an alleged “economic turnaround”, all while its economy remains on international life support and its budget choked by debt servicing.

Debt servicing now the largest chunk of Pakistan’s budget

Debt servicing is now the single largest expenditure in Pakistan’s federal budget. For 2025–26, Rs 8.2 trillion has been allocated to service both domestic and external debt – a staggering 46.7 per cent of the total federal budget of Rs 17.573 trillion.

This means nearly half of every rupee Pakistan earns is going toward paying old loans — not health, not education, not infrastructure, and certainly not to better the lives of its citizens.

Who’s to blame? A corrupt civil-military nexus

Much of Pakistan’s debt crisis is self-inflicted; it’s the result of decades of reckless borrowing, corruption, and a military that refuses to cut its massive budget or relinquish its grip on power.

The Pakistan Army, which has always projected itself as the guardian of national security, has been one of the biggest beneficiaries of foreign aid and loans, using funds meant for development to maintain its bloated defence infrastructure. Instead of using international loans to build economic capacity, both the military and successive civilian governments have diverted funds toward defence and patronage politics.

The result? A hollowed-out economy kept afloat by emergency IMF bailouts, Chinese loans, and Gulf deposits.

Buying weapons while the economy bleeds

Even as Pakistan pleads for debt rollovers and fresh bailouts, it continues to splurge on military hardware. Instead of prioritising economic recovery or social welfare, Islamabad is buying more weapons, revealing its misplaced priorities.

Islamabad recently entered a new strategic alliance with Turkey, centred on defence cooperation, intelligence-sharing, and security arrangements, designed to “do jihad against India.” The partnership includes $900 million in drone sales to Pakistan and more than 700 loitering munitions, as well as ambitious trade goals totalling $5 billion.

Last month, reports suggested that Pakistan had signed a deal with China to acquire 40 J-35A stealth fighter jets at a discounted price.

This is hardly the spending of a nation on the brink of default. These are the choices of a state still obsessed with military parity, primarily with India, even as its own people suffer from poverty, unemployment, and inflation.

What happens if friendly nations refuse help?

The situation could spiral into a full-blown crisis if any of the friendly countries, especially Saudi Arabia or China, refuse to extend their deposits. As The News warned: “The situation can worsen if friendly countries refuse to grant rollovers on their deposits, which would make it compulsory for the government to make payments.”

This isn’t a hypothetical. Gulf nations, particularly Saudi Arabia, have been increasingly vocal in demanding reform and accountability before lending further. China, too, is becoming more cautious, with its own economic pressures mounting.