Pakistan has recorded a significant reduction in its central government debt, dropping by Rs908 billion in the first four months of the current fiscal year (July-October FY26). According to data released by the State Bank of Pakistan (SBP), the total debt stock now stands at Rs76.98 trillion, down from Rs77.88 trillion in June 2025. The decrease represents a 1.16% decline and indicates a positive shift in Pakistan’s overall fiscal position.
The reduction in government debt is driven by decreases in both external and domestic borrowing. External debt contracted by Rs413 billion, or 1.72%, bringing the total external obligations to Rs23.004 trillion by the end of October, compared to Rs23.417 trillion in June. Analysts note that this decline reflects a reduced reliance on foreign financing, marking a departure from previous years when external debt consistently grew.
On the domestic front, Pakistan also achieved a reduction in debt levels, with domestic borrowing declining by Rs496 billion, or 1%, to reach Rs53.976 trillion from Rs54.472 trillion in June 2025. The SBP attributed this improvement to a slowdown in fresh borrowing and the retirement of certain existing obligations, highlighting a more controlled approach to debt management within the country.
The bank further reported that Pakistan’s debt-to-GDP ratio has decreased from 31% to 26%, signaling the first meaningful improvement in years. Governor SBP Jameel Ahmad emphasized that this marks a critical fiscal milestone, as the country has not added to its external debt stock since 2022. Previously, between 2015 and 2022, Pakistan’s external debt had risen by an average of USD 6.4 billion per year.
Economic analysts have welcomed the downward trend, noting that it is a positive signal for macroeconomic stability. However, they caution that sustaining this momentum will require continued fiscal discipline, enhanced revenue mobilization, and careful management of both domestic and external obligations.
The SBP also highlighted the role of its recent financial performance in supporting debt reduction. In the last fiscal year, the bank reported a profit of Rs2.5 trillion, transferring Rs2.4 trillion of that to the federal government. These funds have significantly contributed to retiring existing debt and easing the government’s fiscal burden.
Despite these positive developments, Pakistan continues to face challenges in revenue collection. The Federal Board of Revenue (FBR) has struggled to meet its targets, raising concerns about the long-term sustainability of debt reduction efforts. Experts stress that a combination of disciplined spending, strategic borrowing, and effective revenue collection will be critical to maintaining the country’s improved fiscal trajectory.
Overall, the reduction of Rs908 billion in government debt in just four months of FY26 demonstrates Pakistan’s commitment to fiscal consolidation. If sustained, this trend could enhance investor confidence, stabilize the economy, and provide more room for strategic economic growth initiatives in the coming years.
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