Pakistan’s total public debt increased 7.7% year-on-year to Rs86.72 trillion by the end of June 2026, according to the Annual Debt Review Report for Fiscal Year 2025-26 released by the Ministry of Finance. Despite the increase in the overall debt stock, the country’s public debt-to-GDP ratio improved during the year, while lower interest payments and a reduced federal fiscal deficit contributed to an improvement in several fiscal indicators.
The public debt-to-GDP ratio declined to 68.3% at the end of FY26 from 70.6% a year earlier. Domestic debt increased 9% during the year to Rs59.44 trillion, while external debt rose 6.8% to $98.075 billion. In dollar terms, Pakistan’s total public debt stood at approximately $312 billion by the end of June 2026. The figures indicate that although the nominal debt stock continued to increase, the debt burden relative to the size of the economy declined.
Debt servicing costs also showed a notable reduction during FY26. Government interest payments declined 22% to Rs6.948 trillion. The federal fiscal deficit fell to Rs4.763 trillion from Rs7.089 trillion in the previous year. At the same time, the federal primary surplus increased to Rs2.185 trillion from Rs1.798 trillion, while net federal revenue rose 6% to Rs10.52 trillion. Total non-interest expenditure, however, increased 2.3% during the fiscal year.
Under the Fiscal Responsibility and Debt Limitation Act, government debt stood at Rs77.168 trillion, equivalent to 60.8% of GDP. The difference between this measure and the broader public debt figure reflects the definitions and coverage used for measuring government liabilities under the debt framework.
Domestic sources remained the main channel for financing the federal fiscal deficit during FY26. Around 75% of the deficit was financed through domestic sources, with net domestic financing reaching Rs3.586 trillion. External financing contributed Rs1.177 trillion. The composition of domestic borrowing also changed during the year, with Market Treasury Bills increasing 25% to Rs10.928 trillion.
Financing through Sukuk and Bai-Muajjal also expanded during FY26. The combined stock under these instruments increased 35% to Rs8.559 trillion. Commercial banks increased their participation in government securities, with their share rising from 64% to 70%. The greater participation of banks reflects the continued importance of the banking sector in meeting the government’s domestic financing requirements.
Pakistan also regained access to international capital markets during FY26 after a four-year gap. The federal government issued a $750 million Eurobond in April 2026, followed by 1.75 billion yuan in Panda bonds in May. The return to international debt markets provided additional external financing options and broadened the range of instruments available to the government for managing its financing requirements.
The distribution of external public debt remained concentrated at the federal level. By June 2026, the federal government accounted for 84% of Pakistan’s external public debt, while provincial and sub-national governments accounted for the remaining 16%. Among the provinces, Punjab’s external debt stood at $6.40 billion, Sindh’s at $5.62 billion and Khyber Pakhtunkhwa’s at $2.97 billion.
The government also reduced certain outstanding liabilities during FY26. It repaid Rs1.926 trillion owed to the State Bank of Pakistan and bought back Rs996 billion worth of market debt. These transactions contributed to the government’s management of its outstanding obligations and debt portfolio during the fiscal year.
Government guarantees stood at Rs4.283 trillion at the end of June 2026. The power sector accounted for approximately 56% of the total guarantees, making it the largest component. The size of these guarantees remains an important part of the government’s broader contingent liability position and is linked significantly to financing requirements within the energy sector.
Overall, the FY26 debt position shows an increase in Pakistan’s nominal public debt alongside improvements in several fiscal indicators. The debt-to-GDP ratio declined, interest payments fell substantially and the federal fiscal deficit narrowed, while the primary surplus and federal revenue increased. At the same time, domestic borrowing remained the dominant source of deficit financing, and the continued growth in the overall debt stock and government guarantees remains part of the country’s fiscal management challenge.
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