Pakistan’s public debt has risen to 71% of GDP, exceeding the 60% legal limit set under the Fiscal Responsibility and Debt Limitation Act (FRDLA), the Finance Ministry informed the National Assembly Standing Committee on Finance and Revenue on Thursday.
According to reports, the panel, chaired by Syed Naveed Qamar, was told that total public debt now stands at around Rs80.5 trillion, reflecting a decade-long increase of over 10 percentage points in the debt-to-GDP ratio.
Officials said that by the end of fiscal year 2025, total debt had reached 70.8% of GDP, compared to 60.1% in 2016. External debt, they noted, had surged from Rs6 trillion in 2016 to Rs26 trillion in 2025, while domestic debt increased from Rs13.6 trillion to Rs54.5 trillion during the same period.
Debt servicing consumed 89% of net federal revenue receipts in FY2025, leaving only 11% for all other federal expenditures, including defence, pensions, development, and subsidies.
Economists briefing the committee warned that if unchecked, Pakistan’s debt-to-GDP ratio could climb to 85% by 2035, far exceeding the FRDLA ceiling. They explained that despite Japan’s higher debt ratio of around 200%, Pakistan faces greater fiscal stress due to its limited revenue base and high servicing costs.
A policy paper titled “Pakistan’s Public Debt: Dynamics, Challenges, and the Case for Coordinated Reforms” was presented to the committee, outlining how unsustainable borrowing and weak institutional coordination have entrenched fiscal risks.
The report cited “a vicious cycle of fiscal dominance” where extensive government borrowing crowds out private credit, pressures the central bank to inject liquidity, and allows banks to profit from high-yield government securities. This, it cautioned, weakens monetary transmission, keeps inflation high, and discourages investment.
The experts proposed that Pakistan adopt a coordinated fiscal and monetary strategy supported by credible institutions and transparent rules. They recommended establishing an in-house, model-based framework within the Finance Ministry for forecasting interest rates and yield curves, as well as publishing regular debt-sustainability assessments and contingency plans to improve investor confidence.
They noted that debt sustainability could be restored if the government maintains a 1.5% primary surplus and achieves nominal GDP growth of around 5% annually. Alternatively, if nominal GDP growth remains at least three percentage points above interest rates, the debt-to-GDP ratio could gradually decline to below 60% by FY2035 — but only with strong coordination between the Finance Ministry, the State Bank of Pakistan, and Parliament.
The committee members raised questions about the country’s debt management strategy, external borrowing, and the role of international lenders. They underscored the importance of long-term reforms to strengthen fiscal discipline, broaden non-bank financing, and shift toward concessional, long-term loans.
