By Staff Reporter
ISLAMABAD: Pakistan plans to borrow an additional 6.86 trillion rupees in the fiscal year through June 2027 to cover its budget deficit. It intends to rely on longer-dated fixed-rate bonds and sukuk rather than short-term treasury bills as it tries to extend the maturity of a public debt stock that has grown 76% in four years.
The Finance Ministry laid out the strategy in its Annual Borrowing Plan for fiscal 2027, released on Tuesday. The plan puts gross financing needs at 28.65 trillion rupees, about 20% of gross domestic product. That figure adds a projected federal deficit of 7.02 trillion rupees to 21.63 trillion rupees of debt falling due during the year: 17.1 trillion rupees of domestic maturities and 4.53 trillion rupees of external repayments.
Total public debt reached 86.7 trillion rupees at the end of June, compared with 49.3 trillion rupees at the end of June 2022, the ministry said. Domestic obligations made up 59.4 trillion rupees of the total and external debt 27.3 trillion rupees.
Financing mix
The deficit would be covered by 6.046 trillion rupees of net domestic borrowing, 813 billion rupees of net external financing and 161 billion rupees of privatization proceeds. That leaves roughly 86% of the shortfall to be met at home. Over the ten fiscal years through 2026, domestic sources funded an average of 81% of the deficit and external sources 19%. External financing covered 25% of the gap in fiscal 2026, the highest share since fiscal 2020, according to the ministry.
At home, the government will shift away from bills. The plan projects negative net issuance of 2.59 trillion rupees in market treasury bills, against net issuance of 4.58 trillion rupees in Pakistan Investment Bonds and 3.785 trillion rupees in Ijara sukuk, Bai Muajjal and short-term sukuk. Fixed-rate PIBs are targeted to make up more than half of new issuance, and floating-rate exposure will be confined to a 10-year sukuk with a variable return. Gross sukuk issuance is expected to reach about 6.6 trillion rupees, following the introduction of hybrid sukuk and sukuk with three- and six-month tenors.
The government will keep selling 2- and 15-year zero-coupon bonds, which it said have drawn strong demand from commercial banks and non-bank institutional investors. It also proposes a 20-year fixed-coupon bond, subject to consultation with market participants. It plans to replace its 10-year zero-coupon floating-rate instrument with a 10-year fixed-rate one.
Treasury bills account for 11.1 trillion rupees of the domestic maturities, with 3.1 trillion rupees in PIBs and 1.9 trillion rupees in Ijara sukuk. A large share of the bill redemptions falls in the first half of the fiscal year, the plan shows.
External financing
Net external financing is projected at $2.804 billion, based on inflows of $13.378 billion and outflows of $10.574 billion. Multilateral lenders are expected to be the main source, with net inflows of $1.58 billion. The government also aims to raise more than $2 billion from Eurobonds or international sukuk, subject to market conditions, and to refinance existing foreign commercial bank loans while looking for new facilities on better terms. It has set a target of 1.122 trillion rupees from non-resident investment in Naya Pakistan Certificates and government securities.
External principal maturities are estimated at $15.6 billion. That includes $7 billion of bilateral deposits expected to be rolled over, $5.3 billion owed to multilateral lenders and $3.3 billion to commercial creditors. No Eurobonds mature this fiscal year.
The plan follows Pakistan’s largest-ever international bond sale. The country raised $3 billion through two tranches, drawing almost $6 billion in orders: $1.75 billion of 5.5-year notes at a 7.50% coupon and $1.25 billion of 10-year notes at 7.90%. The sale followed an April Eurobond that marked the government’s return to global debt markets. The September transaction was priced after the fiscal year began and is larger than the more than $2 billion the plan sets aside for Eurobonds or international sukuk. Finance Minister Muhammad Aurangzeb has said Pakistan is also weighing sukuk, rupee-denominated dollar-settled bonds and Panda bonds to repay short-term, expensive debt and reduce rollover risk.
Debt-management record
The ministry said the average time to maturity of the debt portfolio lengthened to 3.8 years in June 2026 from 2.7 years in June 2024, and it targets 4.2 years by fiscal 2028. Interest expenditure fell 22% in fiscal 2026. Buybacks and debt switches worth 4.7 trillion rupees have been carried out since September 2024, and the government said such operations will continue as fiscal space and market conditions allow. It is also restructuring the National Savings Schemes with new products, market-driven pricing and digitalization to broaden retail participation in government securities.
Debt service still absorbs a large share of the budget. The 2026-27 budget earmarks about 8.05 trillion rupees for debt servicing, equal to roughly 43% of total planned spending of 18.77 trillion rupees.
The plan assumes an exchange rate of 290 rupees per dollar for the year. The State Bank of Pakistan’s revaluation rate was about 277 per dollar on Sept. 28. The central bank kept its policy rate at 11.5% at its Sept. 14 meeting, the level to which it had raised it by 100 basis points in April. It cited a further rise in already elevated global commodity prices linked to the Middle East conflict.
The ministry cautioned that the plan’s success will depend on how the macroeconomic and geopolitical environment evolves during the year and on continued fiscal discipline. It said priority will go to international issuance provided conditions abroad are suitable, and that it will keep engaging with sovereign credit rating agencies to support market access.
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