Pakistan faces debt strain, weak outlook

Washington, April 9 Pakistan is facing mounting debt pressures, weak growth prospects and persistent structural vulnerabilities, which risks its economic stability, the World Bank said.

The report highlighted that economies with high public debt, limited fiscal space and heavy external financing needs remain particularly exposed to global shocks such as rising energy prices and tighter financial conditions.

Pakistan, now assessed under a broader regional grouping rather than South Asia, falls into this category of vulnerable economies, the report said.

High external financing requirements are a central concern. Countries with elevated debt and constrained reserves face pressure from currency depreciation, higher borrowing costs and reduced investor confidence, the World Bank said.

Fiscal weakness continues to limit policy options. Low tax revenues and persistent deficits constrain the ability to respond to economic shocks or support growth, the report noted.

Energy dependence adds to the strain. Economies reliant on imported fuel are vulnerable to spikes in global prices, which widen current account deficits and push up inflation.

The report warned that global financial volatility could worsen these pressures. Capital outflows, tighter liquidity and higher interest rates could further slow economic activity in fragile economies.

Banking sector risks also remain. High levels of non-performing loans and weak financial buffers can restrict credit growth and investment, delaying recovery.

The World Bank stressed that sustained structural reforms are critical. Strengthening fiscal management, improving governance and enhancing the business environment are key to restoring stability and attracting investment.

Global shifts in trade and technology could add further pressure. Slower demand and disruptions in export sectors may limit growth opportunities for economies already under strain.

Pakistan has faced repeated balance of payments crises in recent years, often requiring support from the International Monetary Fund. High inflation, currency volatility and energy shortages have weighed on growth.

Efforts to stabilise the economy have focused on fiscal consolidation and structural reforms, but progress has been uneven, leaving the country vulnerable to external shocks.

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