Pakistan’s Debt Rises to Rs80.5T in FY25

Pakistan’s total public debt surged by 13% in fiscal year 2025, climbing to Rs80.5 trillion, despite the Finance Ministry’s efforts to curb the rise through fiscal discipline and strategic debt management.

The Ministry’s Annual Debt Review for FY2025 revealed that domestic debt comprised Rs54.5 trillion (68% of the total), while external debt accounted for Rs26 trillion (32%).

The federal fiscal deficit, totaling Rs7.1 trillion, was the primary catalyst for the debt increase, with 91% financed through domestic sources.

External debt breakdown shows multilateral loans, including those from the IMF, constituting 57%, bilateral loans making up 26%, and commercial loans (including Euro/Sukuk bonds and Naya Pakistan Certificates) covering the rest. These multilateral and bilateral loans, typically long-term with concessional rates, reduce refinancing and interest rate risks.

The Finance Ministry reported Rs850 billion in interest payment savings, narrowing Eurobond yields to 6-9%, and closing the fiscal deficit at Rs7.1 trillion, below the projected Rs8.5 trillion.

On the macroeconomic front, Pakistan achieved 2.7% GDP growth in FY2025, with inflation dropping sharply to 4.6% from 23.8% the previous year. A rare current account surplus of USD 2.1 billion was driven by record remittances of USD 38 billion.

However, the debt-to-GDP ratio rose slightly to 70% from 68%, attributed to slower nominal GDP growth amid easing inflation.

A notable achievement was the shift in domestic debt’s maturity profile, with a decline in short-term treasury bills and an increase in long-term bonds and Sukuk instruments. This extended the average time to maturity for domestic debt from 2.8 years to 3.8 years, reducing future rollover risks.

The Ministry highlighted early debt repayments exceeding Rs1.5 trillion, the issuance of a Green Sukuk, and a reduction in external debt’s share from 38% to 32%, lowering exposure to exchange rate fluctuations. Nonetheless, external debt grew 6% year-on-year, reaching USD 91.8 billion by June 25, 2025, due to IMF disbursements, a USD 1 billion ADB-backed loan, and other multilateral inflows.

Looking forward, the government introduced a Medium-Term Debt Strategy for FY2026-2028, emphasizing longer-term borrowings, reduced reliance on treasury bills, and currency risk mitigation. Plans include diversifying funding sources, with a Panda Bond issuance in China under consideration.

In FY2025, new government guarantees worth PKR 504 billion (0.44% of GDP) were issued, with the total guarantee stock reaching PKR 4.265 trillion by June 2025, primarily allocated to the power sector and commodity operations.

The Finance Ministry’s report underscores a commitment to strengthening debt management practices, prioritizing sustainable growth and fiscal stability.