The country’s debt trajectory “is more sustainable today than suggested by headline rupee figures”, the finance ministry said in a statement on Tuesday, citing its continued focus on debt-to-GDP reduction, early repayments, lower interest costs and a stronger external account.
It asserted that it continued to centre its debt management strategy on aligning public debt-to-GDP ratio to the Debt Limitation Act[1], which provides for the reduction of federal fiscal deficit and debt-to-GDP ratio to a prudent level by effective public debt management. Moreover, the strategy considered “minimising refinancing and rollover risks while generating interest savings to support sustainable public finances”, the ministry said.
According to latest data from the State Bank of Pakistan (SBP), the country’s total government debt has increased[2] by Rs9 trillion in just one year up to June 2025, with domestic debt representing the majority of this increase.
As per SBP, the total government debt increased from Rs68.91 trillion in June 2024 to Rs77.89tr by June 2025, marking a rise of Rs8.97tr. This figure exceeds the debt servicing allocation for the federal budget for fiscal year 2026 (FY26), which stands at Rs8.207tr.
Citing these figures, concerns have been raised regarding the country’s capacity to manage revenue and expenditures effectively.
A Dawn editorial[3] yesterday said Pakistan’s “debt dynamics continue to paint a difficult fiscal picture”.
“For the government, the options are bleak: diverting scarce domestic resources — which would require the IMF’s consent — or borrowing more to add to an already high debt mountain,” it added.
However, the finance ministry, “while noting recent commentary about public debt levels”, maintained in its statement that “absolute numbers, which will naturally rise with inflation, are not meaningful indicators of sustainability in isolation. The appropriate measure of sustainability is looking at debt relative to the size of the economy i.e Debt-to-GDP — not absolute rupee amounts”.
“By this yardstick, which is followed globally, Pakistan’s position has actually improved over the last few years, with debt-to-GDP ratio declining from 74 per cent in FY22 to 70pc in FY25. At the same time, the government has reduced rollover and refinancing risks and saved taxpayers substantial interest costs,” the ministry said.
Detailing its approach towards debt management, the statement outlined debt-to-GDP reduction, early repayments, lower interest costs, and a stronger external account as its main focus.
The ministry said this approach underscored its “commitment to macroeconomic stability, reduced risk, and responsible fiscal management”.
The ministry highlighted that the government, “for the first time in Pakistan’s debt history”, prepaid around Rs2600 billion owed to commercial and central banks before maturity. In doing so, it said, the government reduced the risks of reducing rollover and refinancing, which ultimately led to taxpayers saving “hundreds of billions of rupees in interest savings.”
“Similarly, on the fiscal side, the federal fiscal deficit stood at Rs 7.1tr in FY25, lower than Rs 7.7tr in FY24,” the ministry said, highlighting that Pakistan posted a “historic primary surplus of 2.4pc of GDP, or Rs 2.7tr, for the second consecutive year”.
Consequently, the country’s “total debt stock rose 13pc year-on-year, below the 17pc average growth of the past five years”, it said.
The ministry attributed the record current account surplus of $2bn in FY25 to its “prudent fiscal management.”
“To lower [the] interest burden, prudent liability management along with reduction in interest rate in FY25 delivered over Rs 850bn in interest expense savings compared to the budgeted amount,” the statement said, noting that “in the current fiscal year’s budget, interest allocation is Rs 8.2tr, down from Rs 9.8tr in FY25,” it added.
The ministry further said that the “public-debt average time to maturity has improved to about 4.5 years in FY25 compared to about 4.0 years last year; within this, domestic debt average time to maturity has also risen to over 3.8 years from about 2.7 years.”
Moreover, it said that “part of the increase in external debt reflects balance of payments support, e.g., IMF Extended Fund Facility inflows and non-cash commodity facilities such as the Saudi Oil Fund, that do not require rupee financing.”
“Approximately, Rs 800 billion of the external debt increase is a valuation effect from exchange-rate movements, not new net borrowing,” the statement said.