Pakistan’s public debt has seen a significant increase, reaching Rs 71.6 trillion by December 2024, according to a report released by the State Bank of Pakistan (SBP). This sharp rise is primarily due to continued borrowing aimed at bridging the nation’s growing fiscal deficit. The surge in debt has raised concerns about the sustainability of Pakistan’s fiscal policy and the long-term economic outlook.
The SBP report highlighted that during the first half of fiscal year 2025 (FY25), the central government’s total debt—encompassing both domestic and external liabilities—grew by 4 percent. The total debt stock, which stood at Rs 68.914 trillion at the end of June 2024, climbed to Rs 71.647 trillion by December 2024. This increase reflects an additional Rs 2.733 trillion in debt, signaling a continued reliance on borrowing to finance the government’s expenditure.
Domestic borrowing was the primary contributor to this debt escalation. According to the report, domestic debt surged by 5.7 percent, or Rs 2.723 trillion, during the first half of FY25. This increase saw domestic debt rise from Rs 47.16 trillion in June 2024 to Rs 49.883 trillion by the end of December 2024. The domestic debt structure included long-term loans of Rs 41.106 trillion and short-term borrowings totaling Rs 8.696 trillion. The rise in domestic debt reflects the government’s ongoing effort to meet its financing needs while addressing budgetary gaps.
On the other hand, external debt saw a much more modest increase. The rupee-denominated external debt grew by just Rs 10 billion during the same period, rising from Rs 21.754 trillion in June 2024 to Rs 21.764 trillion by December 2024. A slight change in the exchange rate also contributed to this increase, with the Weighted Average Customer Exchange Rate for the US dollar moving from Rs 278.3668 in June to Rs 278.5672 in December 2024.
Despite a strong 26 percent increase in tax revenues for the first half of FY25, analysts have pointed out that the government was still unable to meet its tax collection targets. The shortfall in tax revenue has necessitated further borrowing, thus adding to the national debt. While the Federal Board of Revenue (FBR) has made strides in improving tax collection, the government’s fiscal gap has made additional borrowing unavoidable.
The SBP has underscored the need for urgent measures to accelerate the growth of tax revenues in order to reduce the rising debt burden. Achieving the primary balance target remains a key challenge, though the central bank has expressed optimism that lower-than-expected interest payments could help limit the fiscal deficit within the projected limits.
Economists and financial analysts are emphasizing the importance of implementing structural reforms to address the root causes of Pakistan’s reliance on borrowing. Reducing the national debt and achieving sustainable fiscal management are seen as vital to ensuring long-term economic stability. Experts argue that Pakistan must move towards a more self-sustaining economy, relying less on external borrowing and focusing on improving domestic revenue generation mechanisms.
As Pakistan’s debt continues to climb, the government faces mounting pressure to balance fiscal responsibility with the need to foster economic growth. Moving forward, implementing effective fiscal policies and strengthening revenue collection will be critical in managing the rising debt levels and ensuring Pakistan’s financial stability in the years to come.