Pakistan Debt Rises by Rs10 Trillion in One Year
Pakistan’s total debt has grown sharply over the past year. According to a Finance Ministry report, the country’s debt rose by more than Rs10 trillion, taking the total beyond Rs84 trillion by June 2025.
The report was prepared under the IMF framework. It projects that Pakistan’s debt to GDP ratio will fall from 70.8% to 60.8% over the next three years. Therefore, officials believe that debt will remain sustainable between fiscal years 2026 and 2028.
However, financing needs are expected to stay high, averaging 18.1% of GDP through 2028. Despite that, interest payment savings reached Rs888 billion in the last fiscal year, offering slight relief.
Risks and Economic Outlook
The report highlighted several challenges to debt sustainability. It warned that an economic slowdown could raise debt risks. Moreover, exchange rate volatility and shifting interest rates may add pressure to repayments.
Pakistan’s debt profile shows that 67.7% is domestic debt, and around 80% of that is on floating rates. As a result, rising interest rates could quickly increase costs. Additionally, short-term debt makes up 24% of the total, creating refinancing risks.
Meanwhile, external debt represents 32.3% of total obligations, mostly concessional loans from bilateral and multilateral partners. Yet, 41% of this debt is also on floating rates, posing a moderate risk level.
The report warned that a widening current account deficit and declining foreign reserves could intensify economic vulnerabilities.
Reforms and Growth Indicators
According to the ministry, fiscal discipline and macroeconomic stability are crucial to easing debt pressure. Efforts to boost exports and the IT sector could further stabilize foreign exchange reserves.
The ministry also reported progress in debt management, backed by technology and competitiveness. However, it cautioned that any revenue drop or extra spending could harm the fiscal balance.
Encouragingly, economic growth improved from 2.6% to 3.0%, and projections show it could hit 5.7% in three years. Inflation fell from 23.4% to 4.5%, expected to average 6.5% by 2028.
In addition, the policy rate has been cut by 1,100 basis points since June 2024, easing pressure on external payments. The federal deficit stayed at 6.2%, better than the target, while the primary balance showed a 1.6% surplus, driven by strong revenue and lower interest costs.
