By Staff Reporter
KARACHI: The government has retired Rs1.5 trillion in public debt ahead of schedule in fiscal year 2025, a move that slashed the debt-to-GDP ratio to 69% from 75% in FY23 and saved Rs 830 billion in interest costs.
The early repayment includes a landmark Rs1 trillion buyback of market debt completed in December 2024 and the retirement of Rs 500 billion owed to the State Bank of Pakistan, originally due in 2029.
“In another bold and unprecedented step toward fiscal responsibility, the Ministry of Finance, Government of Pakistan, has successfully retired Rs 500 billion in debt owed to the State Bank of Pakistan (SBP- a full four years ahead of its scheduled maturity in 2029,” Khurram Schehzad Advisor to Finance Minister said on social platform X.
“Early debt retirement while converting shorter-tenure with longer-tenure debt, significantly reduces concentration risk, lowers future liabilities, and strengthens the country’s macroeconomic foundations by curbing reliance on borrowing.”
More importantly, he said that it reflects the government’s strong commitment to proactive, disciplined, and forward-looking financial governance.
“This early retirement of central bank debt, executed by the Debt Management Office (DMO), marks a major breakthrough in Pakistan’s debt management strategy,” Schehzad said. “Early debt retirement while converting shorter-tenure with longer-tenure debt, significantly reduces concentration risk, lowers future liabilities, and strengthens the country’s macroeconomic foundations by curbing reliance on borrowing.”
This latest achievement builds on an earlier milestone, the successful buyback of Rs 1 trillion in market debt completed by December 2024, the first such operation in the country’s history. “Combined, these two strategic actions amount to the early retirement of Rs1.5 trillion in public debt in FY25, sending a strong signal of economic confidence and reform.”
Moreover, by capitalizing on the significant decline in interest rates with the government’s disciplined borrowing, early repayments, and smart refinancing has led to a staggering Rs830 billion in interest cost savings in FY25.
“This is not just debt reduction — it is decisive, future-focused economic management aimed at building a resilient, credible, and fiscally sustainable Pakistan.”
In addition, it has extended the average time to maturity (ATM) of public debt from 2.70 to around 3.75 years. These early payments have also lowered refinancing risks and freeing up fiscal space for development priorities.
Yet the government remains heavily dependent on domestic borrowing. For the first quarter of FY26, it has set a borrowing target of Rs5.575 trillion from the banking sector, 40 percent higher than the Rs3.970 trillion raised in Q1 of FY25.
To that end, the State Bank of Pakistan has published its calendar for auctions of Pakistan Investment Bonds (PIBs) and Market Treasury Bills (MTBs) covering July through September.
The plan calls for Rs2.4 trillion of medium‑ to long‑term financing via PIBs, split between Rs1 trillion in fixed‑rate securities and Rs1.4 trillion in floating‑rate paper. Fixed‑rate PIB auctions are slated for July 16 and August 1 (Rs300 billion each), with a further Rs400 billion auction in September. A series of six semi‑annual floating‑rate PIB auctions will aim to fulfil the remaining Rs1.4 trillion.
On the short end, the government intends to tap Rs3.175 trillion through six MTB auctions. The first of these is scheduled for July 9 with an indicative target of Rs1.35 trillion.
Economists caution, however, that reliance on domestic markets has its downsides. “Revenue performance has consistently fallen short of projections, forcing the government into larger-than‑planned domestic borrowings,” said an analyst based in Karachi. Total interest payments this fiscal year are expected to exceed Rs8 trillion, putting additional strain on the budget.
Still, officials maintain that the early‑retirement programme represents a turning point. By front‑loading liability management and capitalising on a benign local yield environment, Pakistan has laid the groundwork for a more sustainable debt profile, even as it enters the new fiscal year with an elevated borrowing requirement.
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