By Staff Reporter
KARACHI: Pakistan’s central government debt rose to a record 83.642 trillion rupees at the end of June, as the government leaned more heavily on domestic borrowing to plug its budget gap, according to data released Tuesday by the State Bank of Pakistan.
The debt stock climbed 7.4%, or 5.754 trillion rupees, in the fiscal year that ended June 30, up from 77.888 trillion rupees a year earlier, the central bank said in its debt bulletin. The increase was concentrated almost entirely in local-currency borrowing, underscoring how Islamabad continues to finance its deficit largely at home even as its access to overseas capital markets remains constrained.
Domestic debt rose 9.1% to 59.441 trillion rupees, according to the bulletin, accounting for the bulk of the year’s increase. External debt grew a more modest 3.3% to 24.20 trillion rupees, restrained in part by the rupee’s appreciation against the dollar over the year, which diluted the local-currency value of foreign obligations even as the debt grew in dollar terms.
“In dollar terms, foreign debt increased by $4.5 billion, or 5.5%; however, the impact in rupee terms was partially diluted by the appreciation of the PKR during the year,” said Awais Ashraf, director of research at AKD Securities Ltd.
Despite the record debt load, the debt-to-GDP ratio improved, falling to 66% from 68% a year earlier, Ashraf said, calling it evidence that fiscal consolidation efforts are gaining traction. He described the year’s debt growth as the slowest on record in the available data.
“With the improvement in the country’s credit rating and stable currency, we foresee the government’s reliance on external sources increasing going forward,” Ashraf said. “This, along with lower financing requirements, will create room for advances to pick up pace.”
The composition of the new borrowing points to a government positioning for further monetary easing. Saad Hanif, head of research at Ismail Iqbal Securities, said 3.1116 trillion rupees of the year’s debt increase came in the final quarter alone, with domestic debt contributing 86% of the total increment and now accounting for 71.1% of outstanding government debt.
Within that domestic pile, floating-rate debt jumped almost 25% year-over-year to 10.9281 trillion rupees, while the stock of Pakistan Investment Bonds was largely unchanged — a shift that pushed short-term instruments to 18.4% of domestic debt from 16.1% a year earlier.
“This looks like a deliberate bet on further easing beyond the current 11.5% policy rate, but it re-shortens the maturity profile and leaves servicing costs materially more sensitive to any inflation surprise,” Hanif said.
Islamic financing instruments absorbed a growing share of investor demand, Hanif said, with the stock of Ijara Sukuk expanding 27.6% to 7.8918 trillion rupees. “The Islamic window is absorbing demand the conventional long end is no longer clearing,” he said. He also noted that an apparent spike in short-term external debt reflects a February reclassification of long-term obligations rather than new commercial borrowing.
Pakistan’s broader debt and liabilities — a measure that captures obligations beyond the central government’s direct debt stock, including guarantees and other contingent liabilities — climbed to 99.587 trillion rupees from 94.387 trillion rupees. Total external debt and liabilities rose to $138.85 billion from $135.639 billion, the central bank said.
The State Bank said the government’s primary balance — which excludes interest payments — remained in surplus for a third straight year, while the overall fiscal deficit narrowed from the prior year. Looking to the fiscal year that began July 1, the central bank said fiscal consolidation is expected to continue, with officials targeting a primary surplus equivalent to 2% of gross domestic product and an overall deficit of 3.6% of GDP.
Sustaining that trajectory will hinge on progress the government has struggled to deliver consistently: broadening the tax base and reining in losses at state-owned enterprises. The central bank’s monetary policy committee reiterated the need for those reforms, noting that meeting the new targets will require sustained discipline on both revenue and spending “amidst an uncertain domestic and global environment.”
The Federal Board of Revenue met its revised collection target of 13 trillion rupees for the year, but the intake still fell short of covering total government spending, leaving borrowing as the primary tool for closing the gap.
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