By Staff Reporter
ISLAMABAD: The finance ministry projected a plunge in the public debt-to-GDP ratio to 63.3% by fiscal 2028, down from a record 74.5% at the end of June, banking on fiscal consolidation and macroeconomic stability to tame liabilities that swelled 13% in a year.
The ministry’s Debt Sustainability Analysis Report for 2026-28 flagged the nation’s public and publicly guaranteed debt as sustainable over the medium term despite “a moderate risk arising from gross financing needs.” Total public debt stood at 70.8% of GDP by June’s end, with the ministry eyeing a drop to 60.8% by fiscal 2028. Guarantees, at 3.8% of GDP, are set to shrink to 2.5%.
The public and publicly guaranteed debt-to-GDP ratio climbed 3.6 percentage points to 74.5% in fiscal 2025 from 70.9% a year earlier, the report said. “As of the end of June 2025, the Public and Publically Guaranteed (PPG) debt-to-GDP ratio stood at 74.5pc, depicting a year-on-year increase of 3.6 percentage points from 70.9pc at the end of June 2024.”
Rupee depreciation against major currencies bore the brunt, compounded by easing inflation and a policy rate that kept real interest costs elevated. Domestic PPG debt jumped to 49.8% of GDP from 46.2%, while external PPG held steady.
In absolute terms, PPG debt hit Rs84.79 trillion, up from Rs74.62 trillion. Public debt alone reached Rs80.52 trillion, a Rs9.3 trillion surge from Rs71.24 trillion, with domestic borrowing driving the climb as external debt stabilised in dollar terms. “This shift reflects the government`s policy to rely more on domestic sources, thereby reducing exposure to exchange rate volatility and external refinancing risks.”
Publicly guaranteed debt rose to 4.27 trillion rupees from 3.38 trillion, reflecting the first-time inclusion of commodity operations guarantees as contingent liabilities.
Islamabad vows “prudent economic management and fiscal consolidation” to engineer the decline, with the baseline scenario pencilling PPG debt at 63.3% in fiscal 2028. That trajectory rides on a favourable growth-interest rate differential and sustained primary surpluses. The government will “remain focused on a sustainable debt path by managing risks, diversifying financing sources, and aligning borrowing with fiscal and external sector stability.”
Tailwinds include rising exports, foreign investment and remittances alongside lower global energy prices to buttress reserves and ease external strains. The exchange rate is projected to hold steady. Yet gross financing needs linger as a pressure point, with the GFN-to-GDP ratio seen easing to 15.6% in fiscal 2028 from 26.1%, still above the 15% benchmark, while PPG debt stays within prudent limits under baseline assumptions.
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