The State Bank of Pakistan (SBP) has reported that the federal government’s total debt stock rose sharply by nearly Rs9 trillion during the fiscal year 2025, reflecting Islamabad’s continued reliance on both domestic and external borrowing to bridge fiscal gaps. The figures, released on Tuesday, show that Pakistan’s central government debt increased by 13 percent, outpacing economic growth and raising renewed concerns about the country’s debt sustainability.
According to SBP data, the total central government debt — a combination of domestic and external liabilities — stood at Rs77.888 trillion by June 2025, compared to Rs68.914 trillion in June 2024. This represents an annual increase of Rs8.974 trillion. While borrowing was expected due to persistent fiscal imbalances, the pace of accumulation has alarmed economists who note that the debt growth rate has exceeded Pakistan’s nominal GDP growth.
Topline Securities highlighted that the country’s debt-to-GDP ratio reached 73.2 percent in FY25, up from the previous year, underscoring the growing mismatch between economic output and debt accumulation. With nominal GDP growth recorded at around 8 percent, the 13 percent rise in government debt reflects the deep structural challenges in managing Pakistan’s public finances.
Despite the alarming rise in total debt, some positive developments have also emerged. The government, for the first time in Pakistan’s history, managed to retire a significant portion of debt ahead of schedule. Supported by strong SBP profits transferred to the federal exchequer, the Ministry of Finance executed early repayments amounting to Rs2.6 trillion in less than a year.
According to Khurram Schehzad, Advisor to the Finance Minister, Rs1 trillion worth of domestic commercial market debt was retired in the first half of FY25. This move marked a milestone in debt management as it was the first-ever prepayment of such magnitude in the country. Additionally, Rs500 billion was retired on June 30, 2025, followed by another Rs1.133 trillion repayment by the Debt Management Office on August 29, 2025. Combined, these repayments bring total early retirements to over Rs2.6 trillion, a figure unprecedented in Pakistan’s financial history.
Analysts believe that while the overall debt continues to grow, the proactive strategy of retiring domestic liabilities early has helped ease the immediate pressure on interest payments and improve investor confidence in government securities. Early repayments also send a strong signal to credit rating agencies and international lenders about Pakistan’s intent to strengthen debt sustainability.
However, challenges remain daunting. The fiscal deficit continues to widen due to high expenditure needs, limited revenue growth, and heavy reliance on borrowing. With IMF program targets demanding stricter fiscal discipline, Pakistan’s policymakers face the uphill task of balancing debt sustainability with the need to fund development and social spending.
Experts stress that without broadening the tax base and implementing meaningful fiscal reforms, debt accumulation will continue to outpace GDP growth. While early repayments mark progress, long-term solutions are necessary to address structural imbalances and reduce dependence on borrowing.
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