Public Debt Rises Above FRDLA Limits in FY25

Pakistan’s total public debt increased to Rs80.5 trillion in FY25, rising by Rs9.3 trillion from Rs71.2 trillion recorded a year earlier and remaining significantly above the 60 percent of GDP threshold prescribed under the Fiscal Responsibility and Debt Limitation Act (FRDLA), according to the latest Debt Policy Statement scheduled to be presented before parliament.

The Ministry of Finance reported that total public debt grew by 13 percent year-on-year to Rs80,518 billion as of end-June 2025. Of this amount, domestic debt constituted Rs54,472 billion, while external debt stood at Rs26,047 billion. When broader public sector liabilities are included, aggregate public debt and liabilities increased to Rs92.7 trillion.

Measured against economic output, public debt reached 70.7 percent of GDP by June 2025. Under the FRDLA methodology, which excludes government deposits maintained with the banking system, the debt-to-GDP ratio was calculated at 64.3 percent, still exceeding the statutory ceiling.

Domestic borrowing remained the primary driver of the annual increase, rising by Rs7,312 billion, or 16 percent, during FY25—slower than the 22 percent expansion recorded in FY24. In the first quarter of FY26, domestic debt declined by approximately 2 percent to Rs53,424 billion, reflecting the government’s decision to retire Rs1 trillion in borrowing from the State Bank of Pakistan.

Permanent debt, consisting of medium- and long-term instruments such as Pakistan Investment Bonds (PIBs) and government Ijarah Sukuks, increased by 26 percent year-on-year to Rs41,777 billion by end-June 2025, driven by higher issuance of longer-tenor securities. However, by end-September 2025, permanent debt declined by 2.4 percent following the settlement of Rs1 trillion in PIBs held by the central bank.

Floating-rate debt—primarily market treasury bills with maturities of less than one year—declined by 14.5 percent during FY25 to Rs8,756 billion. This reduction is consistent with the government’s stated objective of lowering refinancing risks by reducing dependence on short-term instruments. The trend continued into FY26, with outstanding treasury bills declining further to Rs8,400 billion in the first quarter.

Unfunded debt, largely mobilised through National Savings Schemes, increased by 8.7 percent year-on-year to Rs3,021 billion by end-June 2025 and represented approximately 6 percent of total domestic debt.

External public debt rose by 6 percent year-on-year to $91.8 billion by end-June 2025, reflecting an increase of nearly $5 billion. In the first quarter of FY26, external debt declined marginally to $91.4 billion. The bulk of the FY25 increase originated from multilateral lenders, including the IMF, with inflows rising by almost $4 billion. Borrowing from commercial banks increased by approximately $1.6 billion, largely attributable to a $1 billion facility backed by an Asian Development Bank policy-based guarantee.

Multilateral institutions now account for 56 percent of Pakistan’s external debt stock, while bilateral creditors—including Paris Club members and bilateral deposits—constitute around 26 percent. International bonds represent 7 percent, commercial bank borrowing 8 percent, and other sources, including Naya Pakistan Certificates, approximately 2 percent.

The Finance Ministry noted that the share of external debt in total public debt declined from 34 percent in June 2024 to 32 percent in June 2025, remaining within the 40 percent limit outlined in the medium-term debt strategy, though exposure to exchange rate volatility continues to pose a key risk.