Pakistan’s total public debt surged by 13% in fiscal year 2025, reaching a record Rs80.5 trillion, according to the Finance Ministry’s Annual Debt Review. Despite proactive debt management strategies and efforts to maintain fiscal discipline, rising domestic and external obligations drove the overall increase.
The report revealed that domestic debt accounted for Rs54.5 trillion, representing 68% of the total, while external debt stood at Rs26 trillion, or 32%. Domestic borrowings primarily financed the federal fiscal deficit, which amounted to Rs7.1 trillion in FY2025, with 91% covered through local sources.
External debt composition shows that multilateral loans, including IMF arrangements, constituted 57% of the total, while bilateral loans represented 26%. Commercial loans, including Euro/Sukuk bonds and Naya Pakistan Certificates, made up the remainder. Officials highlighted that most multilateral and bilateral loans carry concessional terms and long maturities, mitigating refinancing and interest rate risks.
The Finance Ministry also underscored achievements in cost management. Interest payments were reduced by Rs850 billion due to favorable yields on Eurobonds, which ranged from 6% to 9%. Additionally, the fiscal deficit was successfully closed at Rs7.1 trillion, below the projected Rs8.5 trillion.
On the macroeconomic front, Pakistan achieved a GDP growth rate of 2.7% in FY2025, while inflation fell sharply to 4.6% from 23.8% in the previous year. The current account recorded a rare surplus of USD 2.1 billion, buoyed by record remittances totaling USD 38 billion. However, slower nominal GDP growth led to a slight rise in the debt-to-GDP ratio, from 68% to 70%.
A notable accomplishment highlighted by the report is the shift in the domestic debt maturity profile. Short-term treasury bills declined while long-term bonds and Sukuk instruments increased, raising the average maturity from 2.8 years to 3.8 years. This adjustment is expected to reduce rollover risks and enhance debt sustainability.
The government also made historic early debt repayments exceeding Rs1.5 trillion, launched a Green Sukuk, and lowered the share of external debt from 38% to 32%, reducing exposure to exchange rate fluctuations. Nonetheless, external debt grew 6% year-on-year, reaching USD 91.8 billion as of June 25, 2025, due to disbursements from the IMF, a USD 1 billion ADB-backed loan, and other multilateral inflows.
Looking ahead, the Finance Ministry unveiled a Medium-Term Debt Strategy for FY2026-2028. The plan emphasizes longer-term borrowing, reduced reliance on treasury bills, currency risk mitigation, and diversification of funding sources, including a potential Panda Bond issuance in China.
Additionally, the government issued new guarantees worth PKR 504 billion in FY2025, equivalent to 0.44% of GDP, raising the total stock of guarantees to PKR 4.265 trillion. A significant portion of these guarantees supports the power sector and commodity operations.
The Finance Ministry concluded its report by reaffirming its commitment to strengthening debt management practices while pursuing sustainable growth and fiscal stability, underscoring the importance of balancing economic development with prudent borrowing.
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