Punjab clears domestic and commodity debt, external loans edge up to $6.26 billion 

Punjab’s debt stock increased marginally by 0.2% to Rs1.76 trillion by the end of June 2026, although the province fully repaid its domestic and commodity debt during 2025-26, according to official budget documents. 

The remaining liabilities now consist entirely of long-term concessional external loans worth $6.26 billion, equivalent to Rs1.76 trillion.

Total debt increased by Rs3 billion during the fiscal year, but its ratio to Punjab’s gross state domestic product declined to 2.5% from 2.8% in the previous year.

Punjab repaid Rs1.29 billion in domestic debt owed to the federal government during 2025-26 using its own resources.

The domestic borrowing mainly comprised agricultural loans obtained from the federal government between 1975 and 2008 for salinity control and reclamation projects under the Salinity Control and Reclamation Programme.

These loans carried fixed interest rates and originally had a maturity period of 25 years.

The provincial government also cleared its remaining Rs13.8 billion commodity debt during 2025-26, leaving Punjab with no outstanding liability under Food Account-II for the first time.

Commodity financing obligations had increased to Rs629 billion by June 2022 and were projected to reach Rs1.15 trillion by June 2024 in the absence of corrective measures.

Punjab repaid Rs719 billion in commodity debt over the past three fiscal years before clearing the remaining amount during 2025-26.

The province’s external debt portfolio comprises $5.09 billion in financing from multilateral development partners, including the World Bank, Asian Development Bank, Japan International Cooperation Agency and International Fund for Agricultural Development.

Another $1.17 billion has been obtained from bilateral partners, including China, Japan and France.

The loans are provided to Punjab through the federal government and are used to finance development projects and support policy and institutional reforms.

Project loans finance long-term infrastructure and development schemes, while programme loans provide budgetary support linked to policy, institutional or expenditure reforms.

Agriculture, irrigation and livestock account for the largest share of Punjab’s outstanding external debt at 23%.

Urban and community development accounts for 19%, followed by education at 18%, transport and communication at 17%, governance at 11% and health at 7%.

Environment-related borrowing represents 2% of the portfolio, while energy, industries and infrastructure, and tourism each account for 1%.