Pakistan’s public debt reached an all-time high of Rs74.6 trillion by the end of June 2024, according to a recent report by the Ministry of Finance.
Ministry of Finance’s Debt Sustainability Analysis for 2025-27 reveals that the country’s total public and publicly guaranteed debt surged by Rs8.2 trillion, or 12.3%, during the past fiscal year, reaching 70.5% of GDP.
This figure surpasses the statutory debt limit of 57.5% of GDP set by the Debt Limitation Act, indicating that the current debt level is unsustainable. However, the International Monetary Fund (IMF) has maintained that the debt is sustainable to avoid immediate restructuring.
The report highlights that Pakistan remains vulnerable to various debt-related risks due to the high debt burden and substantial financing requirements. The ministry warns that any new macroeconomic or fiscal shocks could push the country’s debt and financing needs to unsustainable levels.
The increase in public debt is primarily attributed to financing the federal fiscal deficit, with interest expenses being a significant component. The finance ministry projects that in a baseline scenario, the debt-to-GDP ratio will decrease from 68.5% to 66.4% between FY2025 and FY2027.
However, a combination of fiscal and macroeconomic shocks could push this ratio above 70%, threatening debt sustainability.
In a worst-case scenario, the debt-to-GDP ratio could exceed 75%, which would increase the government’s financing requirements to around 22.6% of GDP—substantially higher than the manageable threshold of 15% for developing countries like Pakistan.
The report also notes the potential risks associated with Pakistan’s external debt, which is largely obtained from concessional bilateral and multilateral sources. The growing share of short-term debt in recent years has increased refinancing risks, further complicating debt sustainability.
The finance ministry warns that Pakistan’s high external debt makes it vulnerable to exchange rate depreciation, which could be exacerbated by inadequate export receipts, rising imports, and a worsening current account balance. These factors could place additional pressure on the country’s capacity to repay its external debt obligations.
