KEY POINTS
- Pakistan’s public debt rose to Rs 76 trillion by March 2025, with domestic debt at Rs 51.5 trillion and external at Rs 24.5 trillion.
- Interest payments surged to Rs 6.44 trillion in nine months, dominated by domestic debt servicing.
- Government shifted to long-term borrowing, launching 2-year PIBs and 10-year Sukuk, with Shariah-compliant issuances reaching Rs 1.6 trillion.
- Debt management was strengthened through Rs 1 trillion in buybacks and US$ 5.1 billion in external inflows, including US$ 1.03 billion from the IMF.
ISLAMABAD: Pakistan’s total public debt swelled to Rs 76 trillion by the end of March 2025, but the government says it is actively pursuing structural reforms, strategic liability management, and Shariah-compliant financing to steer the country toward fiscal sustainability.
The figures were revealed in the annual Economic Survey FY2025, presented by Finance Minister Senator Muhammad Aurangzeb on Monday.
Breaking down the debt profile, domestic debt stood at Rs 51.5 trillion, while external debt reached Rs 24.5 trillion (approximately US$ 87 billion), highlighting a pressing need for prudent debt management amid ongoing economic recovery efforts.
While Pakistan’s public debt remains at historically high levels, the FY2025 Economic Survey reflects a concerted effort to move toward fiscal consolidation, expand domestic debt instruments, and reduce reliance on short-term borrowing.
Interest Payments Dominate Expenditure
Between July and March FY2025, interest payments on public debt totalled Rs 6.44 trillion, with a staggering Rs 5.78 trillion on domestic debt and Rs 656 billion on external obligations.
This underscores the structural challenge Pakistan faces: a growing portion of its revenue is consumed by debt servicing, limiting fiscal space for development and social spending.
Domestic Financing and Market Reforms
Despite the heavy debt burden, the entire fiscal deficit was financed domestically, largely through long-term instruments. In a notable move to reduce reliance on short-term borrowing, the government retired Rs 2.4 trillion in Treasury Bills, signalling a shift toward a more stable debt structure.
To diversify the investor base and deepen the domestic capital market, the government of Pakistan introduced a 2-year zero-coupon Pakistan Investment Bond (PIB) and launched a 10-year Sukuk — the first of its kind — with both fixed and floating rate options.
These instruments supplement the existing 3-year and 5-year Ijara Sukuk, reflecting growing momentum toward Shariah-compliant financing, which now accounts for Rs 1.6 trillion in issuances.
Additionally, the government introduced a 1-month Treasury Bill to provide liquidity options for institutional investors with short-term cash requirements.
Strategic Liability Management
In a bid to reduce rollover risk and smoothen debt maturities, the Ministry of Finance conducted strategic Liability Management Operations, repurchasing Rs 1 trillion worth of government securities under a Buyback and Exchange Programme.
The move is seen as an effort to optimize debt servicing costs and restructure the maturity profile.
External Inflows and IMF Support
Despite limited access to global capital markets and Indian efforts to block Pakistan’s moves to secure loans from international lenders, Pakistan secured external inflows of US$ 5.1 billion during the first nine months of FY2025.
These comprised US$ 2.8 billion from multilateral partners, US$ 0.3 billion from bilateral allies, US$ 1.5 billion via Naya Pakistan Certificates, and US$ 560 million from commercial banks.
The country also received US$ 1.03 billion under the IMF’s Extended Fund Facility (EFF), providing crucial breathing space for external financing and signalling continued engagement with international lenders.
Economists warn that without structural reforms in taxation, state-owned enterprises, and energy subsidies, the debt trajectory may remain unsustainable in the long term.
