Pakistan cuts government debt by Rs908 billion in first four months of FY26, showing positive fiscal shift

Pakistan’s central government debt fell by Rs908 billion or 1.16% in the first four months (July-October) of the current fiscal year (FY26), marking a modest improvement in the country’s overall debt position. The total debt stock, including both domestic and external debt, stood at Rs76.98 trillion by the end of October 2025, down from Rs77.88 trillion in June 2025, according to the latest data released by the State Bank of Pakistan (SBP). 

The decline in government debt was driven by reductions in both external and domestic borrowing, with the most significant decrease coming from external debt, which contracted by 1.72%. External debt dropped by Rs413 billion, reaching Rs23.004 trillion by the end of October, compared to Rs23.417 trillion in June. This reflects a lower reliance on foreign financing during the period.

On the domestic front, the government managed to reduce its debt by Rs496 billion, or 1%, bringing domestic debt down to Rs53.976 trillion from Rs54.472 trillion in June 2025. The reduction was attributed to a slowdown in fresh borrowing and the retirement of some existing obligations.

The State Bank of Pakistan (SBP) has indicated that Pakistan’s debt management has improved, with the country’s debt-to-GDP ratio falling from 31% to 26%. This marks a positive shift, as Pakistan has not added to its external debt stock since 2022, breaking a long trend of steady annual increases in external debt.

Recently, Governor SBP Jameel Ahmad highlighted that the current decline in the debt burden represents the first meaningful improvement in years. Between 2015 and 2022, Pakistan’s external debt had been rising by an average of USD 6.4 billion annually. 

Analysts view the downward trend as a positive indicator for the economy, although they emphasize that sustained improvement will require continued fiscal discipline and enhanced revenue performance.

The SBP also reported a profit of Rs2.5 trillion in the last fiscal year, with Rs2.4 trillion of that amount transferred to the federal government. This transfer has played a crucial role in retiring some debt and improving debt management.

Despite the positive developments in debt reduction, Pakistan faces ongoing challenges in revenue collection. The Federal Board of Revenue (FBR) has struggled to meet its targets, which has raised concerns about the government’s ability to achieve fiscal sustainability in the long run.