Pakistan’s debt servicing to consume 46.7% of federal budget in FY2025-26

Pakistan’s debt servicing will account for 46.7% of the federal budget in the fiscal year 2025-26, amounting to Rs8.2066 trillion out of the total Rs17.573 trillion budget. 

This is the largest portion of the current expenditures, highlighting the heavy burden of interest and loan repayments on the government’s finances.

The debt servicing allocation is an 8.26% reduction from the revised figure of Rs8.945 trillion in the outgoing fiscal year, a decrease of Rs739 billion. Despite the reduction, the continued reliance on debt servicing limits the funds available for crucial sectors such as health, education, and development.

Domestic debt servicing is set to cost Rs7.197 trillion, while Rs1.009 trillion has been earmarked for foreign loan repayments. Pakistan’s public debt reached Rs76.01 trillion (approximately US$269 billion) by March 2024, having more than quadrupled over the last decade. This includes Rs51.52 trillion in domestic debt and Rs24.49 trillion in external liabilities. 

With public debt now representing 66.27% of GDP, it has surpassed the legal limits set by the Fiscal Responsibility and Debt Limitation Act (FRDLA).

For the first nine months of FY2025, Pakistan paid Rs6.44 trillion in debt interest, which is 66% of the annual target. Of this, Rs5.78 trillion went to domestic lenders, and Rs656 billion to foreign creditors. 

Despite the Ministry of Finance’s efforts to improve cash-flow planning and extend borrowing timelines, the country remains stuck in a debt spiral. High repayments have displaced private investment, weakened the rupee, fueled inflation, and increased dependence on further borrowing.

External financial inflows for July-March FY2025 amounted to $5.07 billion, mainly from multilateral institutions ($2.8 billion), commercial sources ($2.01 billion), and bilateral partners ($258 million). 

However, the country did not issue any global bonds during this period. External outflows, particularly repayments to multilateral creditors, bilateral partners, and commercial lenders, exceeded inflows at $5.636 billion, further exacerbating pressure on Pakistan’s foreign exchange reserves.