Pakistan’s soaring debt fuels IMF and Chinese loans, but funds flow to defence shipyards while citizens face inflation and austerity.
Pakistan’s debt-ridden economy struggles as IMF and Chinese loans finance costly warships and submarines, leaving citizens to bear inflation’s burden
Pakistan’s economic saga in 2025 reads like a high-stakes drama, with skyrocketing debt, shrinking foreign reserves, and a lifeline of loans from the International Monetary Fund (IMF) and China keeping the nation afloat. But, as political analysts and defence establishment sources whisper behind closed doors, the real beneficiaries of this financial tightrope act may not be Pakistan’s struggling citizens but Chinese shipyards and original equipment manufacturers (OEMs).
According to the Economic Survey 2024-25, unveiled by Finance Minister Muhammad Aurangzeb, Pakistan’s debt ballooned to a staggering Rs 76,000 billion in the first nine months of the fiscal year. The cash-strapped economy is projected to grow at a modest 2.7% by June 2025, but this flicker of hope is overshadowed by a grim reality: a significant chunk of borrowed funds is funnelled straight out of the country to pay for Chinese-built warships, submarines, and defence technology.
In May 2025, the IMF approved a $1 billion payout as part of a $7 billion, 37-month programme to stabilise Pakistan’s dwindling foreign exchange reserves and avert a default on its $90 billion debt mountain. The global lender’s conditions fiscal reforms, social spending floors, and austerity measures are hailed as a step toward economic discipline. However, experts argue this is a band-aid solution. “The IMF loans plug immediate fiscal holes but do little to address structural imbalances,” a senior economic analyst said on condition of anonymity. “Pakistan remains trapped in a cycle of borrowing to repay borrowing.”
Worse, a substantial portion of these funds along with rolled-over Chinese loans flows directly to Chinese shipyards for high-profile defence contracts, including frigates, submarines, and technology transfers. “This is less about Pakistan’s security and more about boosting China’s industrial revenues,” a defence establishment source remarked, pointing to Beijing’s Belt and Road Initiative (BRI) ambitions. While Pakistan’s military projects gleam with prestige, ordinary citizens grapple with spiralling inflation and utility bills.
Pakistan’s debt to China surpasses obligations to any other creditor, with most loans carrying high interest rates and short repayment windows. “Unlike concessional loans, Chinese financing for energy projects and defence purchases comes with strings attached,” a political analyst noted. Debt servicing now gobbles up a lion’s share of Pakistan’s fiscal resources, leaving little for public investment. Even China’s much-touted rollovers merely delay the inevitable, piling on interest without reducing the principal.
Closed-door assessments reveal that Chinese OEMs and shipyards are reaping handsome profits, while Pakistan’s economy remains under strain. “The irony is that Pakistan pays for infrastructure and defence capabilities it can’t fully utilise,” a former finance ministry official said. “The benefits accrue to foreign contractors, not the public.”
For the average Pakistani, the economic outlook is bleak. Inflation has driven up the cost of essentials eggs, chicken, sugar, and dairy squeezing household budgets. “The government’s focus on military contracts with China seems disconnected from ground realities,” a Karachi-based economist observed. “Citizens bear the brunt of lender-imposed tariffs and austerity, while foreign shipyards cash in.”
Critics argue that Pakistan’s reliance on external financing props up fiscal and military ambitions but does little for broad-based growth. “The IMF and Chinese loans are a lifeline, but they’re also a noose,” a Lahore-based policy expert quipped. “The question is whether Pakistan can break free from this debt trap before it chokes the economy.”
As Pakistan navigates this precarious path, voices within the security establishment defend the defence spending, citing regional threats. Yet, analysts warn that prioritising costly military projects over domestic welfare risks long-term instability. “The government must balance strategic needs with economic realities,” a defence think-tank source told this writer “, Otherwise, the real cost will be borne by Pakistan’s people, not its creditors.”
With Chinese shipyards thriving and IMF conditions tightening, Pakistan’s economic future hangs in the balance. The question echoing in policy circles is stark: who really gets paid in this high-stakes game of loans and warships?
(Aritra Banerjee is a defence & strategic affairs columnist, and is the co-author of the book 'Indian Navy@75: Reminiscing the Voyage)
