By Staff Reporter
ISLAMABAD: Pakistan’s central government debt declined in the first five months of the fiscal year as a stronger rupee and debt repayments helped ease the burden of foreign borrowings, even as domestic obligations ticked higher amid controlled spending.
Total debt dropped by Rs345 billion or 0.44% to Rs77.543 trillion at the end of November from Rs77.888 trillion in June, according to data released by the State Bank of Pakistan. That marked a 0.74% increase from October but a 10% rise from a year earlier.
“Central government debt decreased because of a reduction in external debt, where foreign debt declined partially because of rupee appreciation and partially due to debt repayment of $790 million,” said Awais Ashraf, director of research at AKD Securities Ltd. “Meanwhile, domestic debt increases by just Rs147 billion due to controlled fiscal spending and higher revenue growth.”
The rupee strengthened to 280.46 per dollar by end-November from 283.74 in June, aiding the reduction in external debt, which fell Rs492 billion, or 2.1%, to Rs22.925 trillion over the period. That represented a 0.34% drop from October, though it was up 5.25% from November 2024.
On the domestic side, borrowings climbed 0.26% to Rs54.619 trillion from June, with a 1.21% increase from October and more than 12% growth year-over-year. Long-term domestic debt rose 1.18%, or Rs538 billion, to Rs46.191 trillion, while short-term obligations fell Rs393 billion to Rs8.363 trillion, signalling an appetite for longer-maturity financing. Debt under the Naya Pakistan Certificate program also edged up Rs2 billion to Rs64 billion.
The decline offers a respite for policymakers grappling with fiscal imbalances, bolstered by the central bank’s transfer of Rs2.42 trillion in profits to the government in fiscal 2025.
Public debt stood at 70% of gross domestic product in June 2025, down from recent highs, with domestic borrowings making up 68% of the total, according to a report from Ismail Iqbal Securities. “One of the core pillars of Pakistan’s reform agenda remains debt management,” the report said. “Heavy reliance on domestic borrowing, particularly through the banking system, has elevated refinancing risks and increased sensitivity to interest-rate movements.”
The International Monetary Fund has stressed the need to diversify financing, extend maturities and boost transparency to relieve pressure on banks, free up credit for the private sector and curb financial risks, the report noted.
Pakistan’s total external debt hovers around $103 billion, incorporating recent inflows, rollovers and valuation shifts. “While the external debt stock has risen, its composition has increasingly tilted toward longer-term multilateral financing, supporting maturity extension and reducing near-term rollover risk,” the report said.
Although debt servicing was projected to consume a large portion of tax revenues in the fiscal 2025 budget, recent policy-rate cuts are seen alleviating interest expenses over the year. Government debt now exceeds 100% of the banking sector’s deposit base, underscoring heavy dependence on local lenders, which rely on central bank liquidity through open market operations amid sluggish deposit growth. This interdependence between the government, commercial banks and the SBP remains a key feature of Pakistan’s financial landscape. The external debt-to-GDP ratio has eased to 26% from 31% in recent years, per SBP data, reflecting improved management.
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