By Staff Reporter
ISLAMABAD: The government unveiled a Rs6.4 trillion borrowing plan for the current fiscal year to service a public debt that ballooned to Rs81.5 trillion by June 30, as an International Monetary Fund mission assesses the nation’s fiscal and monetary performance.
The Ministry of Finance’s Annual Borrowing Plan for Fiscal Year 2026, mandated by the Fiscal Responsibility and Debt Limitation Act, aligns with the 2026-28 Medium-Term Debt Management Strategy and FY26 budget assumptions.
It projects net domestic borrowing of Rs6.395 trillion to cover a federal fiscal deficit of Rs6.5 trillion, with interest payments budgeted at Rs8.207 trillion. A primary surplus of Rs1.706 trillion is expected to ease the shortfall. “Borrowing strategies will be operationalised via quarterly auction calendars, issued monthly, with primary reliance on domestic borrowing to finance the fiscal deficit,” the ministry said.
The government is leaning heavily on domestic markets, prioritising long-term, fixed-rate securities to mitigate interest rate risks. Pakistan Investment Bonds worth Rs4.336 trillion and sukuk worth Rs1.895 trillion will dominate domestic financing. Treasury Bill issuance will be limited, focusing on refinancing quarterly, biannual, and annual maturities.
To diversify its portfolio, Pakistan is expanding Shariah-compliant instruments and introducing Zero-Coupon Bonds to attract institutional investors. The Debt Management Office is exploring Ijarah, Wakalah, and Murabaha structures to boost Islamic financing’s share. Asset Light Sukuk structures are under evaluation, with implementation slated for this year alongside Islamic Joint Financial Advisor banks. The government is also working to develop a Shariah Compliant Yield Curve to strengthen the Islamic finance market.
Externally, Pakistan anticipates net financing of $364 million, leaning on $1.9 billion in multilateral loans and bilateral deposit rollovers of $4 billion from China and $5 billion from Saudi Arabia. The plan includes raising $400 million via Panda and Sustainable Bonds, while repaying $1.8 billion in Eurobond maturities.
Total public debt stood at Rs80.5 trillion by June 2025, with Rs54.5 trillion domestic and Rs26 trillion external. Domestic interest costs are projected at Rs7.2 trillion, with external debt servicing at Rs1.009 trillion for FY26.
Pakistan aims to reduce Gross Financing Needs to 21% of GDP in FY26, driven by fiscal consolidation, a lower deficit, a primary surplus, and reduced debt payments. The strategy reflects efforts to stabilise an economy under IMF scrutiny, with the current mission evaluating fiscal discipline and structural reforms.
While the shift toward long-term and Islamic instruments is seen as prudent, the debt burden and reliance on external rollovers remain risks. A stronger rupee or favorable global rates could provide relief, but external shocks or delayed multilateral funds could strain finances.
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