Pakistan’s domestic debt burden continued its upward trajectory, reaching a record Rs54.28 trillion in August 2025, up by 11.57% from Rs48.65 trillion recorded during the same month last year, according to the latest figures released by the State Bank of Pakistan (SBP). The surge underscores persistent fiscal challenges, with the government increasingly relying on domestic borrowing to bridge widening budget deficits and meet financing needs.
On a month-on-month basis, domestic debt and liabilities experienced a slight decline of 1.68% compared to Rs55.2 trillion in July 2025. The reduction primarily reflects temporary adjustments in short-term borrowing instruments as the government attempts to balance liquidity requirements and debt servicing costs.
The SBP data revealed that permanent debt remains the dominant component of the overall domestic debt structure, standing at Rs41.88 trillion — an increase of 22.81% year-on-year. This segment includes Rs40.99 trillion in federal government bonds, Rs474.94 billion in SBP’s on-lending to the government against Special Drawing Rights (SDR) allocations, Rs413.02 billion in prize bonds, and Rs2.84 billion in market loans. The sharp rise in long-term debt instruments reflects the authorities’ focus on extending maturities to reduce rollover risks, even as interest rate pressures remain high.
Meanwhile, floating debt — which typically consists of short-term borrowing — declined significantly by 21.05% to Rs8.65 trillion in August 2025, compared to Rs10.96 trillion a year earlier. Market Treasury Bills (MTBs) continued to represent the bulk of the floating debt, amounting to Rs8.54 trillion. Analysts note that the contraction in floating debt is a sign that the government may be shifting toward longer-term financing instruments to stabilize debt servicing profiles.
The government’s unfunded debt also witnessed an increase of 9.61% year-on-year, reaching Rs3.09 trillion in August 2025. This category mainly comprises national savings schemes, which rose 10.29% to Rs3.01 trillion compared to Rs2.73 trillion in the corresponding period last year. The sustained rise in savings instruments indicates strong participation from retail investors and individuals seeking secure returns amid high inflation and limited alternative investment options.
In contrast, borrowing through the Naya Pakistan Certificates (NPCs) dropped notably by 17.8% year-on-year to Rs65.76 billion in August 2025. On a month-to-month basis, NPC inflows also fell by 7.96% from Rs71.44 billion recorded in July. Market observers attribute this decline to changing interest rate dynamics and growing investor preference for shorter-duration or domestic currency instruments.
Foreign currency loans, another component of domestic liabilities, rose modestly to Rs379.49 billion in August 2025, compared to Rs373.82 billion a year earlier. Despite the slight increase, the share of foreign currency loans in total domestic debt remains limited, reflecting the government’s continued reliance on rupee-denominated instruments for domestic financing.
Interestingly, domestic liabilities outside the debt framework witnessed a sharp decline of 34.54% year-on-year, standing at Rs202.27 billion. This reduction may indicate repayments or restructuring efforts undertaken by the government to streamline its overall debt profile and reduce contingent liabilities.
Economists warn that the growing domestic debt burden, coupled with elevated interest rates, could significantly strain fiscal resources in the coming quarters. Debt servicing already consumes a substantial portion of federal revenues, leaving limited fiscal space for development spending. With external inflows constrained and the IMF program enforcing strict fiscal discipline, the government may continue to rely heavily on domestic borrowing to finance budgetary needs.
Analysts also highlight that sustained increases in domestic borrowing could crowd out private sector credit, dampening investment and growth prospects. The challenge for policymakers will be to strike a balance between fiscal consolidation and growth-supportive measures while maintaining investor confidence in the local debt market.
Pakistan’s rising domestic debt underscores the urgent need for comprehensive fiscal reforms aimed at broadening the tax base, rationalizing expenditures, and strengthening debt management frameworks. Failure to address these structural issues could amplify future vulnerabilities, particularly amid ongoing global economic uncertainties and volatile interest rate trends.
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