Pakistan’s debt rises by Rs10 trillion in one year

ISLAMABAD: Pakistan’s total debt has increased by more than Rs10 trillion over the past year, taking the overall figure beyond Rs84 trillion, according to a Finance Ministry report prepared under the IMF framework.

The report estimates that the country’s debt-to-GDP ratio will fall from 70.8 per cent to 60.8 per cent over the next three years, with debt expected to remain sustainable between fiscal years 2026 and 2028.

According to the Finance Ministry, Pakistan’s total debt had exceeded Rs84 trillion by June 2025, marking an increase of over Rs10 trillion in one year.

Financing needs are projected to remain elevated at 18.1 per cent until 2028. However, interest payment savings amounted to Rs888 billion during the last fiscal year.

The ministry also highlighted several risks and challenges to debt sustainability. It warned that economic slowdown poses a major threat, while exchange rate volatility and changes in interest rates could increase the debt burden.

External shocks and climate change risks were also cited as potential threats. With 67.7 per cent of Pakistan’s debt being domestic, a large portion of it — about 80 per cent— is on a floating rate, leaving the country exposed to interest rate fluctuations. Short-term debt makes up 24 per cent, maintaining refinancing risks.

According to the report, external debt accounts for 32.3 per cent of the total, most of it being concessional loans from bilateral and multilateral sources.

It said that around 41 per cent of external debt is on a floating rate, posing a moderate level of risk. The report also warned that a widening current account deficit and declining foreign exchange reserves could aggravate vulnerabilities.

The ministry noted that fiscal discipline and macroeconomic stability would help ease debt pressure, while boosting exports and the IT sector could support foreign exchange stability. Improved transparency in debt issuance and rising investor confidence were also mentioned in the report.

The ministry said that progress has been made toward effective debt management through sustainable growth, technology, and competitiveness.

However, the report cautioned that a drop in revenue or increase in spending could negatively impact the primary balance, while contingent liabilities could also weigh on finances. Economic growth rose from 2.6 per cent to 3.0 per cent last year, with projections suggesting it could reach 5.7 per cent within three years.

Inflation has dropped from 23.4 per cent to 4.5 per cent, with expectations it will average around 6.5 per cent by 2028, the report said.

 The policy rate has been cut by 1,100 basis points since June 2024, easing pressure on external payments and stabilising the exchange market.

The federal fiscal deficit was contained at 6.2 per cent against a target of 6.8 per cent, while the primary balance recorded a 1.6 per cent surplus, expected to remain above 1 per cent in the medium term due to higher revenues, restrained spending, and lower interest payments.