Pakistan’s Debt-to-GDP Ratio Falls to 70%

On Tuesday, the Ministry of Finance in Islamabad asserted that Pakistan’s debt trajectory is far more sustainable than raw rupee figures suggest, pointing to an enhanced debt-to-GDP ratio, early loan repayments, reduced interest costs, and a fortified external account.

In a statement from the Finance Division, the ministry underscored its debt management strategy, which prioritizes aligning the public debt-to-GDP ratio with the Fiscal Responsibility and Debt Limitation Act, curbing refinancing risks, and securing interest savings to foster sustainable public finances.

“The Ministry of Finance clarifies that absolute debt numbers, inflated by inflation, are not reliable indicators of sustainability alone,” the statement emphasized, advocating the debt-to-GDP ratio as the true measure.

Per the ministry, Pakistan’s debt-to-GDP ratio improved from 74% in FY22 to 70% in FY25, with the government mitigating refinancing risks and saving taxpayers billions in interest costs.

The government prepaid Rs2,600 billion before maturity, slashing rollover risks and yielding substantial interest savings. On the fiscal front, the federal fiscal deficit for FY25 was Rs7.1 trillion, down from Rs7.7 trillion in FY24, achieving a primary surplus of 2.4% of GDP.

Despite a 13% year-on-year rise in total debt stock, the government curbed average debt growth by 17% compared to the prior five years. The ministry also highlighted interest savings exceeding Rs850 billion against the budgeted amount, driven by astute liability management and lower interest rates.

Additionally, early debt retirement has refined the debt maturity profile, bolstering sovereign debt resilience and minimizing refinancing risks. The current account surplus of $2 billion in FY25, the first in 14 years, underscores effective fiscal management.

The ministry reaffirmed its commitment to further reducing the debt-to-GDP ratio, accelerating early repayments, lowering interest costs, and strengthening the external account.