By Staff Reporter
ISLAMABAD: Pakistan’s central government debt grew at its slowest pace in 15 years in the fiscal year ending June, the country’s finance adviser said on Friday, citing improvements in debt sustainability that he said had meaningfully reduced repayment risks in one of Asia’s most financially stretched economies.
Finance Adviser Khurram Schehzad said central government debt had expanded just 5 percent in the fiscal year to date — a sharp deceleration from a peak of 23 percent in fiscal year 2022-23 and well below the historical average of roughly 12 percent annually. He described the trend as reflecting a structural shift in how Pakistan manages its public finances.
“Every government borrows. Every government repays. Every government refinances maturing debt,” Schehzad said in a post on social media platform X. “The real question is whether debt is becoming more sustainable, more affordable, and less risky. Today, the answer is yes.”
Pakistan has long relied on external and domestic borrowing to paper over chronic shortfalls — a narrow tax base, persistent trade deficits, rising debt-servicing costs and recurring balance-of-payments crises have made the country a repeat customer of the International Monetary Fund and bilateral creditors. The IMF approved a fresh $7 billion bailout in 2024.
Debt-to-GDP falls, external exposure shrinks
Schehzad pushed back against figures circulating on social media that put Pakistan’s total debt at between 97 and 100 trillion rupees — equivalent to up to $359 billion. Those numbers, he said, conflated central government debt with a broader category that includes private sector liabilities.
Citing State Bank of Pakistan data, he said central government debt stood at 81.9 trillion rupees ($294.2 billion).
The globally accepted benchmark for assessing sovereign debt is the ratio of debt to gross domestic product, not the absolute rupee figure, he said — a point he said was being routinely misrepresented in public commentary.
Pakistan’s debt-to-GDP ratio has declined to approximately 68 percent in fiscal year 2025-26, down from around 76 percent in 2019-20 and roughly 75 percent as recently as 2022-23, according to Schehzad.
More consequential for market confidence, he said, was the decline in external debt as a share of GDP — from around 28 percent in 2019-20, where it remained through 2022-23, to approximately 21 percent in fiscal year 2026. Analysts have long flagged Pakistan’s heavy external debt load as among its most acute vulnerabilities, given the country’s limited foreign exchange reserves and export base.
“That is the direction every country aims for,” he said.
Interest burden eases, reserves improve
The improvement in Pakistan’s debt profile extends beyond the headline ratio. Interest payments, which consumed roughly 64 percent of gross federal revenues at their peak in fiscal year 2022-23, have fallen to around 40 percent in the current fiscal year — still elevated by international standards but a significant reduction that frees fiscal space for development spending.
In absolute terms, interest expenditure has dropped from 8.89 trillion rupees ($31.94 billion) to approximately 6.94 trillion rupees ($24.96 billion) in fiscal year 2026, according to Schehzad.
The average maturity of Pakistan’s domestic debt portfolio has also lengthened, from 2.8 years to 3.8 years, reducing the risk of the government being caught short when large tranches come due for refinancing — a vulnerability that had amplified fiscal pressure in earlier periods of market stress.
In a measure described by the adviser as a first for Pakistan, debt amounting to 4.7 trillion rupees has been retired outright during this period rather than rolled over.
Pakistan’s import cover — a closely watched indicator of reserve adequacy — has risen from under two weeks in 2023 to nearly three months, and Schehzad said a growing share of reserve accumulation was coming from non-debt sources, improving what he called the quality of reserves.
“Some social media posts compare governments using absolute debt figures. That is not how sovereign debt is assessed anywhere in the world,” he said. “Debt is not measured by headlines. It is measured by sustainability.”
Pakistan secured a $1 billion tranche from the IMF earlier this year under its Extended Fund Facility programme, following a staff review that noted progress on fiscal consolidation and revenue mobilisation targets. The country has also benefited from easing global commodity prices and a relative stabilisation of the rupee.
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