ISLAMABAD: A warning from G20 finance leaders over rising global borrowing costs has brought Pakistan’s external debt refinancing risks into sharper focus, as higher international bond yields could increase the cost of future borrowing.
IMF Managing Director Kristalina Georgieva warned at the G20 Finance Ministers and Central Bank Governors meeting in Asheville, North Carolina, that rising yields in advanced economies could spill over into emerging and developing economies. She said high refinancing needs and rising debt-service costs were already constraining many developing countries.
For Pakistan, the issue is significant because the country continues to manage its external obligations through a combination of official financing, bilateral rollovers and periodic access to international capital markets.
Higher Yields Could Raise Pakistan’s Financing Costs
Former State Bank of Pakistan governor Dr Ishrat Husain told Wealth Pakistan that Pakistan’s external debt and liabilities had reached $139 billion, while several indicators of debt-servicing capacity had weakened.
He said external debt servicing had increased from 1.7 percent to 4 percent of GDP and from 18 percent to 44 percent of exports of goods and services, meaning a larger share of economic output and export earnings was being used for external repayments.
Higher global yields can increase the benchmark cost of issuing Eurobonds and Sukuk. At the same time, stronger returns in advanced economies can reduce investor appetite for riskier emerging-market assets.
For Pakistan, more expensive or restricted market financing could increase reliance on official creditors and foreign-exchange reserves.
IMF Support Provides a Buffer
Pakistan retains support from its ongoing IMF programme and has been rebuilding its fiscal and foreign-exchange buffers. In May 2026, the IMF Executive Board approved about $1.1 billion under the Extended Fund Facility and $220 million under the Resilience and Sustainability Facility following completion of the relevant programme reviews.
The IMF said the programme had supported macroeconomic stability and the rebuilding of fiscal and foreign-exchange buffers, while reforms remained focused on strengthening public finances and addressing structural vulnerabilities.
However, IMF financing does not remove the broader refinancing challenge. Pakistan remains exposed to movements in global interest rates, investor risk appetite, exchange rates and its future external financing requirements.
Rupee, Energy Imports Add to External Financing Risks
Maryam Ayub, Research Economist at the Policy Research Institute of Market Economy (PRIME), told Wealth Pakistan that higher global borrowing costs could affect Pakistan through several channels.
She said higher benchmark yields could raise the cost of issuing Eurobonds and Sukuk, while an increase in Pakistan’s sovereign-risk premium could add further to borrowing costs.
Ayub also noted that stronger returns in advanced economies could reduce the relative attractiveness of Pakistani assets and put additional pressure on the rupee.
Because much of Pakistan’s external debt is denominated in foreign currencies, a weaker rupee increases the domestic-currency cost of servicing that debt even when the foreign-currency amount remains unchanged, she said.
She added that Pakistan’s IMF programme and improved reserves provided some protection but did not eliminate external financing vulnerabilities.
Focus on Longer Maturities and Export Growth
Husain said Pakistan should seek to reduce interest and refinancing costs by prioritising concessional financing and extending debt maturities.
He also called for stronger export growth, investment, productivity and foreign-exchange earnings, alongside efforts to contain current-account deficits.
The IMF has likewise stressed the importance of fiscal discipline and rebuilding buffers as global financing conditions remain uncertain. Georgieva said stronger international cooperation and improvements to debt-restructuring mechanisms would remain important for countries facing debt pressures.
For Pakistan, the immediate challenge is to manage upcoming maturities and secure financing well ahead of time, limiting exposure to sudden changes in global borrowing costs and capital-market conditions.