KEY POINTS
- Debt-to-GDP ratio fell from 74% in FY22 to 70% in FY25
- Rs 2.6 trillion in early repayments cut rollover and refinancing risks
- Interest savings exceeded Rs 850 billion in FY25
- Pakistan posts current account surplus for first time in 14 years
ISLAMABAD: Pakistan’s Ministry of Finance on Tuesday defended Islamabad’s debt position, stating that the country’s debt trajectory has become “more sustainable” as the government focuses on reducing the Debt-to-GDP ratio, lowering refinancing risks, and saving on interest costs.
In a statement issued in Islamabad, the ministry stressed that absolute debt numbers, which naturally rise with inflation, are not meaningful in isolation.
“The appropriate measure of sustainability is debt relative to GDP — not absolute rupee amounts,” the statement said, adding that Pakistan’s Debt-to-GDP ratio had improved from 74 per cent in FY22 to 70 per cent in FY25.
Early repayments, rollover risk reduction
Officials pointed out that for the first time in Pakistan’s debt history, the government prepaid Rs 2.6 trillion across commercial and central bank obligations ahead of maturity.
According to the ministry, this step reduced rollover and refinancing risks while saving taxpayers “hundreds of billions of rupees” in future interest expenses.
Fiscal consolidation and primary surplus
The ministry further noted progress on the fiscal side. Pakistan’s federal fiscal deficit narrowed to Rs 7.1 trillion in FY25 from Rs 7.7 trillion in FY24. As a share of GDP, the fiscal deficit declined to 6.2 per cent (consolidated deficit: 5.4 per cent) in FY25, compared to 7.3 per cent (consolidated deficit: 6.8 per cent) the year before.
For the second consecutive year, Pakistan posted a historic primary surplus of 2.4 per cent of GDP, or Rs 2.7 trillion.
Despite a 13 per cent rise in the overall debt stock, the ministry insists this was below the five-year average growth of 17 per cent.
Interest savings and debt maturity profile
Prudent liability management, combined with a reduction in the interest rate during FY25, delivered more than Rs 850 billion in savings compared to budgeted interest costs.
According to the statement, Interest allocation in the current fiscal year’s budget has been reduced to Rs 8.2 trillion, from Rs 9.8 trillion in FY25.
Early retirement of debt has also strengthened the maturity profile of public debt, with the average time to maturity rising to 4.5 years in FY25 compared to 4.0 years in the last year. Within this, domestic debt maturity improved to over 3.8 years from 2.7 years.
External account stability
The ministry linked fiscal discipline to external resilience. Pakistan recorded a current account surplus of USD 2 billion in FY25 — its first in 14 years — reducing gross external financing needs.
Officials explained that part of the increase in external debt reflected balance-of-payments support, including inflows under the IMF’s Extended Fund Facility and non-cash commodity facilities such as the Saudi Oil Fund, which do not require rupee financing.
They added that roughly Rs 800 billion of the increase in external debt was due to exchange-rate valuation effects rather than new net borrowing.
Pakistan’s debt trajectory is on “a more sustainable path” than suggested by rupee-denominated headline figures, the statement added.
The government’s strategy remains centred on lowering the Debt-to-GDP ratio, ensuring early repayments, containing interest costs, and consolidating external balances, it concluded.
