Pakistan secures USD 6.1 billion of FY27 external debt repayments

Pakistan has already repaid or secured rollover arrangements for USD 6.1 billion of the USD 21.5 billion in external debt obligations due during fiscal year 2026-27, easing near-term financing pressures as the country strengthens its external position, State Bank of Pakistan Governor Jameel Ahmad said Monday.

Speaking at an analysts' briefing after the Monetary Policy Committee left the benchmark policy rate unchanged at 11.5%, Ahmad said Pakistan's external debt obligations for FY27 include USD 17.6 billion in principal repayments and the remainder in interest payments.

Of the total, USD 6.1 billion has already been addressed, including USD 4 billion through rollover agreements, leaving about USD 15.4 billion to be repaid or refinanced during the rest of the fiscal year.

The Monetary Policy Committee unanimously kept the benchmark policy rate unchanged, citing an improving macroeconomic outlook while warning that renewed geopolitical tensions in the Middle East continue to pose risks to inflation and external stability.

Ahmad said Pakistan's external position has strengthened significantly over the past three years, with the SBP's foreign exchange reserves increasing six-fold to USD 18.4 billion at the end of June 2026 from February 2023.

The central bank expects reserves to rise further to USD 20.2 billion by December 2026, bringing holdings closer to the equivalent of three months of imports.

Workers' remittances are projected to increase to about USD 44 billion during FY27, while exports are expected to improve, supported by stronger rice shipments and continued growth in information technology exports.

Pakistan recorded a current account deficit of USD 139 million in FY26, near the lower end of the SBP's projected range. The central bank expects the deficit to widen modestly as economic activity strengthens but remain within 0% to 1% of gross domestic product during FY27.

Ahmad said higher global commodity prices, rising production costs and domestic food prices are likely to keep inflation above the central bank's target range in the coming months. However, inflation is expected to ease gradually during FY27 and settle within the SBP's 5% to 7% target range, near the upper end, provided global energy markets remain stable and there are no major shocks from administered prices or adverse weather.

Headline inflation slowed to 11.1% in June from 11.7% in May, while core inflation eased to 8.4% from 8.7%, reflecting moderating underlying price pressures.

Ahmad reiterated that Pakistan operates a market-based exchange rate regime and that the SBP does not target a specific exchange rate. He said the real effective exchange rate stands at about 106, reflecting Pakistan's relatively higher inflation than its trading partners, although easing domestic inflation should reduce pressure over time.

He also welcomed S&P Global Ratings' recent upgrade of Pakistan's sovereign credit rating to B from B-minus, saying it reflected improved macroeconomic stability and prudent economic policies. The upgrade has helped lower Pakistan's external risk premium, with five-year credit default swap spreads narrowing and Eurobond yields declining across maturities.

The governor reaffirmed the SBP's forecast for economic growth of 3.5% to 4.5% in FY27 but said the outlook remains dependent on agricultural performance, evolving El Niño weather conditions and geopolitical developments in the Middle East.

He said economic activity slowed during the final quarter of FY26 because of regional conflict, higher energy prices and fiscal tightening. However, high-frequency indicators, including automobile sales, cement dispatches, fertilizer offtake, satellite data and business confidence surveys, suggest the economy began recovering in June.

The agriculture outlook has also improved, with stronger sugarcane production expected to offset lower cotton output, while tariff rationalization and higher private-sector credit are expected to support broader economic activity.

On public finances, Ahmad said the Federal Board of Revenue achieved its revised PKR 13 trillion tax collection target in FY26, while Pakistan recorded a primary fiscal surplus for a third consecutive year and significantly reduced its overall fiscal deficit.

The SBP expects fiscal consolidation to continue in FY27, targeting a primary surplus of 2% of gross domestic product and an overall fiscal deficit of 3.6% of gross domestic product. Ahmad said broadening the tax base and reducing losses at state-owned enterprises remain critical to sustaining fiscal stability.

The governor also said the SBP expects to transfer about PKR 1.4 trillion in profits to the federal government for FY26, subject to completion of the central bank's external audit.

Addressing food security concerns, Ahmad said the government had approved the import of 1 million metric tons of wheat as a precautionary measure and that existing wheat inventories remain sufficient. The SBP's FY27 forecast assumes agricultural growth of below 3%.

Asked about reports of a proposed USD 10 billion financing package from the United States, Ahmad declined to comment, saying the Ministry of Finance was better placed to discuss any negotiations or potential terms.