What the government is doing to bring its interest costs down

At a briefing for financial market participants at the Pakistan Stock Exchange on 12 January, the federal government’s Debt Management Office (DMO) outlined what officials described as a “pipeline” of initiatives intended to lower the government’s borrowing costs and reduce refinancing and foreign-exchange risks. The timing is not accidental. After several years in which policy tightening pushed domestic yields to generational highs, debt service became the single most politically constraining line item in the federal budget.

Official figures underline why the government is now treating debt management as a front-line economic policy, not back-office plumbing. Pakistan’s public debt stock rose to about Rs80.5 trillion by the end of FY25, with roughly 68% domestic and 32% external, and a public debt-to-GDP ratio around 70%. Even as inflation cooled sharply in FY25, the legacy of the high-rate period remained visible: the Ministry of Finance says interest expense in FY25 was Rs8.9 trillion, rising 9% year-on-year – far slower than the roughly 43% jump recorded a year earlier, but still an enormous cash drain.