Pakistan has witnessed a significant increase in foreign loan and grant inflows, with total foreign assistance to the country rising by Foreign Loan Inflows to Pakistan Surge by Over 25% in the first six months of the current fiscal year 2025‑26 (July–December) compared with the same period the previous year.
This surge in foreign financing — driven mainly by programme support under the International Monetary Fund (IMF) and increased bilateral and multilateral disbursements — is one of the most notable developments in Pakistan’s external financing landscape in recent times.
What the Latest Data Shows
According to government and financial sector reports:
- Foreign assistance inflows (excluding IMF disbursements) reached approximately $4.507 billion during July–December 2025, up from $3.603 billion in the same period last year — an increase of over 25 percent.
- Monthly inflows accelerated notably toward the end of the calendar year, with December 2025 seeing nearly $1.475 billion, a substantial jump compared with the same month in 2024.
- These figures do not include about $1.2 billion that Pakistan received from the IMF earlier in January, which, when added, brings total six‑month external loan and grant disbursements to around $5.7 billion.
This growth reflects stronger engagement with both multilateral lenders (such as the World Bank and Islamic Development Bank) and bilateral partners, and marks a notable improvement from the previous year.
Why Loan Inflows Have Increased
Several key factors contributed to this surge:
1. IMF Programme Support
One of the primary reasons for the increase in foreign loan inflows is programme assistance from the International Monetary Fund (IMF). Pakistan has been working under an IMF financing arrangement, which has helped unlock disbursements and encouraged other lenders to commit funds.
IMF support often acts as a seal of confidence for other creditors, signalling that major macroeconomic policies are being implemented and external financing conditions are improving.
2. Increased Bilateral and Multilateral Disbursements
Disbursements from bilateral and multilateral lenders also contributed significantly to growth in foreign borrowing:
- Bilateral lending (excluding three strategic friendly countries) rose sharply — in some cases by more than 200 percent compared with last year — even though overall annual targets have not yet been met.
- The World Bank became the largest multilateral contributor in the first half of the year, providing over $800 million — significantly more than in the same period last year — while the Islamic Development Bank also ramped up its support.
These increases show that Pakistan has maintained external engagement with development partners, even amid fiscal and balance‑of‑payments pressures.
3. Growth in Naya Pakistan Certificates
In addition to formal loans, capital inflows via instruments like Naya Pakistan Certificates (which raise funds from overseas Pakistanis) also climbed, adding liquidity to external accounts and supporting broader financing needs.
Implications of Rising Loan Inflows
While higher foreign loan inflows can offer short‑term relief, they carry mixed implications for Pakistan’s economy:
1. Support for Foreign Exchange Reserves
Foreign loan and grant inflows help bolster Pakistan’s foreign exchange reserves, providing crucial space to manage imports, service external debt, and stabilise the currency. Increased inflows in the second half of 2025 likely contributed to improved liquidity in the external accounts.
This is particularly important given ongoing pressures on the current account and the need to maintain reserve buffers.
2. Fiscal Space and Budget Support
Foreign financing provides budgetary support, helping the government cover fiscal shortfalls without resorting solely to domestic borrowings. With inflation, subsidy commitments, and social spending all competing for funds, external assistance eases immediate fiscal pressure.
3. Increased Debt Burden and Repayment Obligations
However, borrowing also means future repayment commitments, which can strain fiscal balances if not paired with growth‑enhancing investments or revenue reforms. Pakistan’s total government debt has been on the rise, with foreign debt making up a growing portion of liabilities — a trend tracked by the State Bank and fiscal authorities.
While foreign loans provide temporary relief, they also add to the long‑term debt servicing burden if not managed carefully.
4. Signals to Investors and Creditors
Increased loan inflows, especially under IMF arrangements, can act as a confidence signal to international investors and multilateral lenders. Consistent disbursements indicate progress on policy benchmarks and can make Pakistan a more attractive destination for other forms of external financing, including foreign direct investment (FDI).
Challenges and Risks Ahead
Despite the upbeat numbers on foreign borrowing, Pakistan still faces several structural challenges:
- Meeting Annual Targets: Although foreign loan inflows are higher year‑on‑year, Pakistan has not yet fully achieved its annual external financing targets from bilateral and multilateral sources.
- External Debt Sustainability: With total loan and grant inflows rising, the country must carefully balance additional borrowing with long‑term sustainability to avoid undue stress on public finances.
- Current Account Pressures: External assistance helps cushion foreign exchange reserves, but structural issues in exports and trade imbalances remain persistent headwinds to external sector stability.
Managing these risks will be critical if Pakistan is to convert short‑term financing gains into long‑lasting economic stability.
The Outlook for 2026 and Beyond
The increase in foreign loan inflows in the first half of fiscal year 2025‑26 reflects a mix of external support, IMF programme links, and active engagement with lending partners. Moving forward, the focus will likely be on:
- Completing IMF programme benchmarks to unlock further disbursements.
- Expanding the quality and purposes of borrowings, including project financing that supports growth and revenue generation.
- Complementary domestic reforms, especially in revenue mobilisation, export competitiveness, and fiscal discipline.
These measures will help ensure that foreign financing contributes to sustainable economic outcomes, rather than just meeting short‑term liquidity needs.
Conclusion
The surge in foreign loan inflows to Pakistan by over 25 percent in the early part of fiscal year 2025‑26 underscores the importance of external financing during times of economic strain. While this growth has bolstered reserves and provided much‑needed fiscal support, it also highlights broader challenges — including debt sustainability and structural imbalances.
How Pakistan navigates these inflows — balancing short‑term needs with long‑term resilience — will have a significant impact on its economic trajectory in the years ahead.
