Islamabad – Pakistan’s total Public and Publicly Guaranteed (PPG) debt reached Rs84.79 trillion, roughly equivalent to $286 billion, by the close of fiscal year 2025. This represents a critically importent increase from the Rs74.62 trillion recorded in June 2024, reflecting the complex economic landscape currently facing the nation.
Rising Debt-To-GDP Ratio
Table of Contents
- 1. Rising Debt-To-GDP Ratio
- 2. Debt Composition and Projections
- 3. Government Strategy and Future Outlook
- 4. Understanding Public Debt Dynamics
- 5. Frequently asked Questions About Pakistan’s Public Debt
- 6. How might the Rs9.3 trillion increase in public debt during FY25 impact Pakistan’s ability to invest in crucial sectors like education and healthcare?
- 7. Public Debt Soars by Rs9.3 Trillion in FY25: A Closer Look at the Implications
- 8. Understanding the Scale of the Increase
- 9. Key Drivers behind the Debt Accumulation
- 10. Breakdown of Pakistan’s Public Debt – Composition & Structure
- 11. Implications for the Pakistani Economy
- 12. Case Study: Sri Lanka’s Debt Crisis – A Cautionary Tale
- 13. Debt Management Strategies & Potential Solutions
The Ministry of Finance (MoF) reported that the overall public debt-to-GDP ratio climbed to 74.5% in June 2025, a 3.6 percentage point increase from the 70.9% recorded the previous year. A primary driver of this rise has been the depreciation of the Pakistani rupee against major global currencies, compounded by relatively high policy interest rates.
However, modest gains in real GDP growth and an improved primary surplus have partially offset this increase, mitigating the overall impact on the debt-to-GDP ratio. Despite these positive factors, the surge in domestic debt has outpaced external debt accumulation.
Debt Composition and Projections
As of June 2025, domestic debt accounted for 49.8% of the PPG debt-to-GDP ratio, up from 46.2% in the prior fiscal year. External debt remained relatively stable in dollar terms, with the government strategically prioritizing domestic borrowing to reduce vulnerability to exchange rate fluctuations and external refinancing risks. Publicly guaranteed debt rose to Rs4.27 trillion,a ample increase from Rs3.38 trillion in the preceding year. This rise is partly attributed to including commodity operation guarantees within the total contingent liabilities.
The MoF projects a reduction in the public debt-to-GDP ratio to approximately 70% in the current fiscal year and further to 63.3% by fiscal year 2028. These projections are predicated on sustained macroeconomic stability,diligent fiscal consolidation,and robust economic management.
| Indicator | June 2024 | June 2025 | Projected FY28 |
|---|---|---|---|
| Total Public Debt (Rs Trillion) | 71.24 | 80.52 | N/A |
| PPG Debt-to-GDP Ratio (%) | 70.9 | 74.5 | 63.3 |
| Domestic Debt-to-GDP Ratio (%) | 46.2 | 49.8 | N/A |
| External Debt-to-GDP Ratio (%) | N/A | Broadly unchanged | N/A |
Government Strategy and Future Outlook
The government has committed to a sustainable debt path through prudent risk management, diversification of financing sources, and alignment of borrowing with overall fiscal and external sector stability. Boosting exports, attracting foreign investment, increasing remittances, and benefiting from lower global energy prices are expected to strengthen foreign exchange reserves and alleviate external account pressures.Authorities also anticipate relative exchange rate stability.
Did You Know? Pakistan’s debt sustainability is closely monitored by international financial institutions like the International Monetary Fund (IMF) and the World Bank, who often provide conditional assistance based on fiscal performance.
Pro Tip: Understanding the debt-to-GDP ratio is crucial for assessing a country’s financial health. A higher ratio can indicate increased risk of default or economic instability.
Understanding Public Debt Dynamics
Public debt is a critical component of a nation’s economic health, influencing its ability to fund essential services, invest in infrastructure, and respond to economic shocks. Managing this debt effectively requires a delicate balance between financing progress goals and maintaining fiscal sustainability. Factors such as global interest rates, exchange rate fluctuations, and domestic economic growth all play significant roles in shaping a country’s debt profile.
Pakistan, like many developing economies, faces unique challenges in managing its debt, including a reliance on external borrowing, vulnerability to commodity price shocks, and political instability. Addressing these challenges requires thorough economic reforms, improved governance, and a long-term commitment to fiscal discipline.
Frequently asked Questions About Pakistan’s Public Debt
- What is Pakistan’s current public debt? Pakistan’s public debt exceeded $286 billion as of June 2025, equivalent to Rs84.79 trillion.
- What factors contributed to the increase in Pakistan’s debt? The depreciation of the Pakistani rupee and high policy interest rates were primary drivers of the recent debt increase.
- what is the government’s plan to reduce the debt? The government aims to lower the debt-to-GDP ratio to 70% in the current fiscal year and 63.3% by FY28 through fiscal consolidation and economic stability.
- What is the difference between total debt and PPG debt? Public and Publicly Guaranteed (PPG) debt includes debt owed by the government and debt guaranteed by the government,providing a comprehensive measure of public sector liabilities.
- Is Pakistan’s debt considered sustainable? The Ministry of Finance projects the debt to remain sustainable, although with moderate risks related to gross financing needs.
What steps do you believe Pakistan should prioritize to ensure long-term debt sustainability? How might global economic conditions impact Pakistan’s debt management strategy in the coming years?
Share your thoughts in the comments below, and join the conversation!
How might the Rs9.3 trillion increase in public debt during FY25 impact Pakistan’s ability to invest in crucial sectors like education and healthcare?
Public Debt Soars by Rs9.3 Trillion in FY25: A Closer Look at the Implications
Understanding the Scale of the Increase
Pakistan’s public debt has witnessed a considerable surge,escalating by Rs9.3 trillion during Fiscal Year 2025 (FY25). This represents a meaningful increase, bringing the total national debt to a concerning level. The rise is attributed to a confluence of factors, including increased borrowing to meet fiscal deficits, debt servicing costs, and exchange rate fluctuations impacting foreign debt. Analyzing this debt burden requires a detailed examination of its components and potential consequences for the Pakistani economy.
Key Drivers behind the Debt Accumulation
Several key factors contributed to this dramatic increase in sovereign debt:
* Fiscal Deficit: Persistent budget deficits necessitate government borrowing, primarily through the issuance of government securities (Pakistan Investment Bonds – PIBs, Treasury Bills – T-Bills).
* Rising Interest Rates: Globally, and within Pakistan, increasing interest rates have substantially inflated the cost of servicing existing debt. A larger portion of the budget is now allocated to debt repayment, leaving fewer resources for development spending.
* exchange Rate Depreciation: The Pakistani Rupee’s depreciation against the US Dollar directly increases the Rupee value of external debt. This is a major contributor to the overall debt stock.
* External Borrowing: Continued reliance on external financing from multilateral institutions (IMF, World Bank) and bilateral creditors adds to the foreign currency reserves pressure and overall debt.
* Circular Debt: The persistent issue of circular debt in the energy sector continues to strain government finances, requiring bailouts and contributing to the overall fiscal burden.
Breakdown of Pakistan’s Public Debt – Composition & Structure
Understanding where the debt lies is crucial. Here’s a breakdown:
* Domestic Debt (Approximately 60%): Primarily held by banks, financial institutions, and the general public through government securities. This is largely short-to-medium term debt.
* External Debt (Approximately 40%): Owed to foreign governments, international financial institutions, and commercial banks. This includes long-term loans and short-term trade finance.
* Debt by Instrument:
* pibs (Pakistan Investment Bonds): Long-term fixed-rate instruments.
* T-Bills (treasury Bills): Short-term instruments.
* IMF Loans: Concessional and non-concessional lending.
* Bilateral Loans: Loans from countries like China, Saudi Arabia, and the UAE.
* Eurobonds/Sukuks: Debt issued in international markets.
Implications for the Pakistani Economy
The escalating public debt has far-reaching implications:
* Reduced Fiscal Space: A larger portion of the government’s revenue is diverted towards debt servicing, limiting funds available for essential public services like healthcare, education, and infrastructure development.
* Crowding Out Effect: High government borrowing can crowd out private sector investment by increasing competition for available credit and driving up borrowing costs for businesses.
* Inflationary Pressures: Government borrowing from the State Bank of Pakistan (SBP) can lead to an increase in the money supply, possibly fueling inflation.
* Balance of Payments Issues: High external debt obligations exacerbate balance of payments challenges, requiring continuous efforts to secure external financing.
* Sovereign credit Rating: A high debt-to-GDP ratio can negatively impact Pakistan’s sovereign credit rating, making it more expensive to borrow in international markets.
* Economic Instability: Prolonged high debt levels can create economic instability and hinder long-term sustainable growth.
Case Study: Sri Lanka’s Debt Crisis – A Cautionary Tale
Sri Lanka’s recent economic crisis, triggered by unsustainable debt levels, serves as a stark warning. Excessive borrowing, coupled with economic mismanagement and external shocks (like the COVID-19 pandemic), led to a default on its debt in 2022. This resulted in severe economic hardship, including hyperinflation, shortages of essential goods, and political instability. Pakistan must learn from this example and prioritize debt sustainability.
Debt Management Strategies & Potential Solutions
Addressing the debt crisis requires a multi-pronged approach:
* Fiscal Consolidation: Implementing measures to reduce the fiscal deficit, such as increasing tax revenue and controlling government expenditure.
* Debt Restructuring: Negotiating with creditors to restructure existing debt, potentially extending repayment terms or reducing interest rates.
* **Divers
