Pakistan’s total public debt increased by 13% in fiscal year 2025, reaching Rs80.5 trillion, despite efforts by the Finance Ministry to manage the surge through fiscal discipline and proactive debt management strategies.
The ministry’s Annual Debt Review for FY2025 revealed that domestic debt accounted for Rs54.5 trillion, representing 68% of the total, while external debt stood at Rs26 trillion (32%).Â
The federal fiscal deficit, which amounted to Rs7.1 trillion, was identified as the primary driver of the debt increase, with 91% of this deficit financed through domestic sources.
The breakdown of external debt shows that multilateral loans, including those from the IMF, make up 57% of the total, while bilateral loans represent 26%, and commercial loans (including Euro/Sukuk bonds and Naya Pakistan Certificates) make up the remainder. These multilateral and bilateral loans are typically long-term with concessional rates, mitigating risks associated with refinancing and interest rate changes.
The Finance Ministry also highlighted savings of Rs850 billion in interest payments, narrowing the yields on Eurobonds to 6-9%, and successfully closing the fiscal deficit at a figure lower than the projected Rs8.5 trillion.
On the macroeconomic front, Pakistan achieved a GDP growth of 2.7% in FY2025, with inflation dropping significantly to 4.6%, compared to 23.8% in the previous year. The country also recorded a rare current account surplus of USD 2.1 billion, driven by record remittances of USD 38 billion.
However, the debt-to-GDP ratio edged up slightly to 70% from 68% due to slower nominal GDP growth, as inflation continued to ease.
A key achievement highlighted by the Finance Ministry was the shift in the maturity profile of domestic debt. The report noted a decline in short-term treasury bills, with a corresponding increase in long-term bonds and Sukuk instruments. This change increased the average time to maturity for domestic debt from 2.8 years to 3.8 years, which is expected to reduce rollover risks in the future.
The Ministry also pointed out the historic early debt repayments of over Rs1.5 trillion, the launch of a Green Sukuk, and a reduction in the share of external debt from 38% to 32%, which helped lower exposure to exchange rate fluctuations. However, external debt grew by 6% year-on-year, reaching USD 91.8 billion as of June 25, 2025, due to disbursements from the IMF, a USD 1 billion ADB-backed loan, and other inflows from multilateral institutions.
Looking ahead, the government has rolled out a new Medium-Term Debt Strategy for FY2026-2028, focusing on longer-term borrowings, reducing reliance on treasury bills, and mitigating currency risks. The plan includes diversifying funding sources, with a Panda Bond issuance in China under consideration.
In FY2025, the government also issued new guarantees worth PKR 504 billion, equivalent to 0.44% of GDP. The total stock of government guarantees at the end of June 2025 stood at PKR 4.265 trillion, with a large portion allocated to the power sector and commodity operations.
The Finance Ministry’s report concludes with a focus on strengthening debt management practices, with continued emphasis on sustainable growth and fiscal stability.
