By Staff Reporter
ISLAMABAD: The finance ministry on Tuesday dismissed concerns over a nearly Rs9 trillion surge in public debt, asserting that the country’s debt trajectory is “more sustainable today than suggested by headline rupee figures.”
The statement followed data from the State Bank of Pakistan (SBP) showing total government debt rising to Rs77.89 trillion by June 2025, up Rs8.97 trillion from Rs68.91 trillion a year earlier, with domestic debt accounting for most of the increase. The figure exceeds the Rs8.207 trillion allocated for debt servicing in the fiscal 2026 federal budget, raising questions about Islamabad’s ability to manage revenues and expenditures.
Some analysts have warned of tough choices ahead. “For the government, the options are bleak: diverting scarce domestic resources — which would require the IMF’s consent — or borrowing more to add to an already high debt mountain,” one assessment noted.
The ministry, addressing recent commentary on debt levels, argued that “absolute numbers, which will naturally rise with inflation, are not meaningful indicators of sustainability in isolation.” It emphasized the debt-to-GDP ratio as the global standard. “By this yardstick, which is followed globally, Pakistan’s position has actually improved over the last few years, with debt-to-GDP ratio declining from 74 per cent in FY22 to 70pc in FY25,” the minister said in a statement.
The government has also reduced rollover and refinancing risks while saving taxpayers “substantial interest costs,” it added.
Pakistan’s debt strategy aligns with the Debt Limitation Act, which mandates reducing the federal fiscal deficit and debt-to-GDP ratio through effective debt management. The approach focuses on “minimising refinancing and rollover risks while generating interest savings to support sustainable public finances,” the ministry said.
Key pillars include lowering the debt-to-GDP ratio, early debt repayments, cutting interest costs, and strengthening external accounts, reflecting a “commitment to macroeconomic stability, reduced risk, and responsible fiscal management.”
In a first, the government prepaid Rs2,600 billion to commercial and central banks before maturity, reducing rollover risks and yielding “hundreds of billions of rupees in interest savings” for taxpayers, the ministry added.
The federal fiscal deficit fell to Rs7.1 trillion in FY25 from Rs7.7 trillion in FY24, with Pakistan posting a “historic primary surplus of 2.4pc of GDP, or Rs2.7tr, for the second consecutive year.” Total debt stock growth slowed to 13% year-on-year, below the 17% average over the past five years.
A record $2 billion current account surplus in FY25 was attributed to “prudent fiscal management.” Interest savings also stood out, with “prudent liability management along with reduction in interest rate in FY25” delivering over Rs850 billion in savings compared to budget estimates. Interest allocations for FY26 are set at Rs8.2 trillion, down from Rs9.8 trillion in FY25.
Debt maturities have improved, with the average time to maturity for public debt rising to 4.5 years in FY25 from 4.0 years, and domestic debt extending to 3.8 years from 2.7 years.
The ministry clarified that part of the external debt rise reflects balance-of-payments support, including IMF Extended Fund Facility inflows and non-cash facilities like the Saudi Oil Fund, which do not require rupee financing. It added that Rs800 billion of the increase was due to exchange-rate valuation effects, not new borrowing.
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