The International Monetary Fund has demanded Pakistan cut down expenses as the two sides hold talks for a new bailout package to have economic stability in the country, sources said.

The demand came as Pakistan’s mounting debt burden and high-interest payments have put a significant strain on the country’s economy.

Data reveals that interest payments on public debt have surpassed the federal government’s net revenues, putting the sustainability of Pakistan’s economy in jeopardy. In the first nine months of the current fiscal year, the country paid a staggering Rs5,518 billion in interest payments while the net revenues during the July-March period amounted to Rs5,313 billion.

Sources suggested that interest payments on debt are projected to reach Rs9,787 billion in the next fiscal year, further exacerbating the government’s fiscal woes. The current fiscal year’s target for interest payments was set at Rs7,303 billion, but the actual figure is expected to climb to Rs8,371 billion, a Rs1,068 billion overshoot.

The IMF has deemed Pakistan’s high external financing needs and reliance on high-interest loans as “dangerously unsustainable,” urging the government to implement policies that can reduce the debt burden.

The lender has emphasised that a successful continuation of policy reforms was crucial for ensuring the sustainability of Pakistan’s debt levels, which are projected to decline from 72.1% to 70% of GDP in the next fiscal year.

The South Asian country has not shared the amount of loan it seeks from the Fund, but in February Bloomberg News reported the amount to be at least $6 billion. The country would seek to negotiate an Extended Fund Facility with the IMF, the report added.

Pakistan last month completed a short-term $3 billion programme, which helped stave off sovereign default, but the government of Prime Minister Shehbaz Sharif has stressed the need for a fresh, longer-term programme.

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In its staff report earlier this week, the IMF acknowledged Pakistan’s economic improvement, however, it warned that the outlook remains challenging, with downside risks remaining exceptionally high.

The country narrowly averted default last summer, and its $350 billion economy has stabilised after the completion of the last IMF programme, with inflation coming down to around 17% in April from a record high of 38% last May.