SLOW PACE: The government’s external debt rose from Rs23.4 trillion to Rs24.2 trillion – a jump of Rs783 billion – which was lower than previous trends due to the appreciation of the rupee against the US dollar in the last fiscal year. PHOTO:FILE
ISLAMABAD:
The federal government’s debt, excluding loans from the International Monetary Fund (IMF) and some other liabilities, jumped to Rs83.6 trillion by June this year, marking a cumulative increase of 75% during the past four years despite a significant surge in revenues.
The State Bank of Pakistan (SBP) on Tuesday released the debt bulletin for fiscal year 2025-26 to the extent of the direct debt burden of the central government. As of the end of June, the federal government debt increased to Rs83.6 trillion, Rs5.8 trillion or 7.3% higher than the burden in the preceding fiscal year, according to the central bank’s debt bulletin.
The figure is exclusive of the loans that have been taken from the IMF and some bilateral creditors and are booked on the balance sheet of the central bank. The SBP will release the complete public debt picture by next month. However, compared to the debt burden at the end of June 2022 when the Pakistan Democratic Movement (PDM) government presented its first budget after ousting Imran Khan in April, the central government’s debt increased by Rs35.8 trillion. In the past four years, the federal government’s debt has increased by 75%, showed the archived data of the central bank.
But the pace of increase was slower than previous years due to the appreciation of the rupee against foreign currencies and tight control on civil government expenses by the finance ministry. However, there have also been instances where the finance ministry relaxed these controls and issued supplementary grants. During the past four years, the Shehbaz Sharif-led government remained in power, barring the period of July-February 2023-24 when there was a caretaker setup. But the budget for the caretaker government had also been presented by the PDM government.
During this period, Pakistan remained under IMF programmes and the government significantly increased the tax burden of the people, including charging higher petroleum levy, higher taxes from the salaried class, the real estate sector and the corporate sector.
But due to higher debt servicing cost and continued financing of social protection programmes, retaining ministries in devolved subjects and funding provincial nature development schemes, the expenditures too remained high.
The fiscal numbers released by the Ministry of Finance showed that the debt has been on the rise despite a 107% increase in the federal government’s gross revenues in four years, before paying the shares of the provinces under the National Finance Commission (NFC).
The expenditure too remained high, increasing by 66% during this period, and a significant portion of these expenses was in areas that fall in the provincial domain. The Ministry of Finance has not yet released the fiscal operations for the last year and the revised estimates given in the budget are used for this article.
The debt-to-GDP ratio, a yardstick for debt sustainability, can be determined once the complete details are released by the central bank. Under the Fiscal Responsibility and Debt Limitation Act, the government is bound to reduce debt by 0.5% to 0.75% of GDP every year until it reaches 50% by 2032-33. However, the coalition government, like its predecessors, is in violation of the law.
The high indebtedness has left little space for spending on productive sectors of the economy, with 42% to 50% of the budget consumed by interest payments. For this fiscal year, over Rs8 trillion are earmarked for debt servicing and another Rs8.8 trillion would go to provinces as their shares in the NFC.
This higher-than-statutory debt limit indicates that Pakistan’s debt burden is unsustainable. However, the IMF continues to declare it sustainable to avoid the need for immediate domestic and foreign debt restructuring.
The significant increase in public debt was primarily due to financing the federal fiscal deficit, with interest expenses being a major component. Pakistan’s financing requirements remain at unsustainable levels, ranging between 20% to 23% of GDP. For a developing country like Pakistan, financing needs of 15% of GDP are considered manageable.
The central bank report showed that the government’s domestic debt jumped from Rs54.5 trillion in June 2025 to Rs59.5 trillion in one fiscal year, an increase of Rs5 trillion or 9.1%.
The government’s external debt rose from Rs23.4 trillion to Rs24.2 trillion – a jump of Rs783 billion – which was lower than previous trends due to the appreciation of the rupee against the US dollar in the last fiscal year.
Pakistan’s external debt is mostly obtained from concessional bilateral and multilateral sources. However, the growing share of short-term debt in recent years poses risks to debt sustainability due to high refinancing risks, further increasing gross financing needs. Within the external debt portfolio, fixed-rate debt accounts for about two-thirds of total external debt.
Pakistan’s fiscal position always remains vulnerable to shocks, with the country currently facing the impact of the Middle East conflict.
