Pakistan’s debt debate is trapped in the wrong question. Each budget season produces another argument about whether public debt has risen or fallen as a percentage of gross domestic product (GDP), whether the International Monetary Fund (IMF) has imposed too much austerity, and whether the country should borrow more or less. The arithmetic matters. It does not explain the political economy of dependence.

A sovereign does not service debt with GDP. It services debt through revenue, exports, foreign exchange, domestic savings and the confidence required to refinance obligations as they mature. Debt becomes alarming when these capacities remain weak. It becomes developmental when borrowing enlarges them. This distinction is central to Pakistan’s predicament.

World Bank data put Pakistan’s GDP at about US$407.3 billion in 2025. Gross capital formation was only about 14.3 percent of GDP and exports of goods and services around 10 percent. The World Bank’s Human Capital Index for Pakistan remains 0.41, meaning that a child born today is expected to become only 41 percent as productive as she could be with complete education and full health. These are not peripheral social indicators. They determine how much debt an economy can carry without sacrificing development. This is why international comparisons based on debt-to-GDP ratios can mislead. Japan can carry public debt exceeding twice its GDP because much of it is yen-denominated, held in deep domestic markets and supported by a highly productive economy and substantial public assets. 

The United States borrows in the principal reserve currency of the world. Canada’s gross debt looks large while its net public debt is far smaller because the public sector owns substantial financial assets. India carries a higher general-government debt ratio than Pakistan but has a much larger domestic financing base, deeper markets, greater reserves and stronger growth. Pakistan’s headline debt ratio is lower than several of these countries. Its room for manoeuvre is also narrower. The IMF’s May 2026 review assessed Pakistan’s debt as sustainable under its baseline, while simultaneously recording large external financing requirements and stressing that repayment capacity depends critically on policy implementation and timely external financing. There is no contradiction. Sustainability is not sovereignty.

The more useful concept is debt-carrying capacity. That capacity is weakened when three failures reinforce one another. Low revenue forces the state to borrow. Low exports restrict the foreign exchange available to service external obligations. Low productivity prevents rapid expansion of both the tax base and exports. Interest payments then compress development expenditure, weakening the human and physical capital required for future productivity. Debt becomes both consequence and amplifier of the low-growth........

© The Friday Times