By Staff Reporter
KARACHI: The government debt surged 13% in the fiscal year ended June 30, reaching Rs77.888 trillion, as the nation leaned heavily on domestic and external borrowing to plug a widening budget deficit and cover escalating interest costs, central bank data showed on Tuesday.
The State Bank of Pakistan (SBP) reported that central government debt rose from Rs68.914 trillion a year earlier, with a 2.4% month-on-month increase in June. Domestic debt, the largest component, jumped 15.5% to Rs54.471 trillion, while external debt grew 7.6% to Rs23.417 trillion. The data, released with a near one-month lag, underscores Pakistan’s growing dependence on financing to meet its fiscal obligations.
“The government’s debt has risen to fund the budget deficit and service interest on existing obligations,” said Awais Ashraf, research director at AKD Securities Ltd. in Karachi. “Tax revenues only cover non-interest expenses. If fiscal consolidation remains on track, debt growth could slow by a quarter this fiscal year.”
Interest payments on total debt soared to Rs9.46 trillion in fiscal 2025, with domestic debt servicing accounting for Rs8.07 trillion despite lower interest rates. Total debt and liabilities, including non-government obligations, climbed to Rs94.197 trillion from Rs85.457 trillion a year earlier.
In dollar terms, external debt and liabilities rose to $134.97 billion from $131.04 billion, with public external debt up 5.6% to $103.75 billion. Debt to multilateral lenders, including the IMF, increased 8.2% to $42.48 billion, with IMF obligations rising to $9.268 billion from $8.378 billion.
External debt servicing rose to $18.049 billion in fiscal 2025 from $16.932 billion, driven by $12.711 billion in principal repayments, up from $5.458 billion, though interest payments fell to $5.338 billion from $11.475 billion.
“Higher servicing costs reflect $2.7 billion in retired commercial loans, $1.47 billion in repatriated Naya Pakistan Certificates and NBP/BOC deposits, and $1.3 billion in bank loan repayments in the second half,” Ashraf said.
Despite the debt spike, analysts see glimmers of progress. “The debt stock reflects fiscal needs and reliance on domestic instruments and multilateral support,” said Saad Hanif, head of research at Ismail Iqbal Securities Ltd. “Yet, financing quality has improved with longer-tenor sukuk and PIBs reducing rollover risks, and SBP reserves at multi-year highs offer a stronger external buffer.”
Pakistan has stepped up efforts to pare its debt load. The government repaid over Rs1.6 trillion to the SBP, contributing to total early debt retirements exceeding Rs2.6 trillion in under a year. This includes a historic Rs1 trillion retirement of domestic commercial debt in the first half of fiscal 2025, followed by Rs500 billion on June 30 and Rs1.133 trillion on August 29, according to Khurram Schehzad, advisor to the finance minister.
The SBP posted a Rs2.5 trillion net profit for fiscal 2025, transferring Rs2.428 trillion to the government, easing fiscal pressures. The debt-to-GDP ratio edged up to 73.2%, as debt growth outpaced nominal GDP growth of 8%, per a Topline Securities report. The external debt-to-GDP ratio held steady at a seven-year low, and external debt servicing as a share of exports dipped to 34% from 35%.
Analysts stress that sustained fiscal discipline is critical. “Stronger reserves and multilateral inflows bolster near-term repayment capacity,” Hanif said. “The focus must shift to broadening the revenue base and entrenching fiscal consolidation for lasting debt sustainability, not just temporary relief.”
The ratio of external debt servicing to foreign exchange reserves was 115% in fiscal 2025, but Topline Securities expects improvement by June 2026 as reserves grow. Pakistan’s ability to manage its debt will hinge on balancing reform with domestic and global economic challenges.
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