In the quiet corridors of Islamabad’s Finance Ministry, a silent earthquake is unfolding. Public debt has breached 70.2 percent of GDP—shattering the legal ceiling of 60 percent—and now towers at roughly Rs80.5 trillion.
Interest payments alone devour nearly 89 percent of federal net revenues, leaving a pitiful 11 percent for schools, hospitals, roads, and flood defenses. When almost every rupee the state earns is handed back to lenders, growth becomes a mirage. The mother in rural Sindh skipping medicine, the factory in Faisalabad running captive generators, the graduate in Lahore scrolling jobless—these are not isolated tragedies. They are symptoms of an economic model being eaten alive from within, where borrowing to pay past borrowing has become the national pastime, and the banking sector profits handsomely from the decay.
The numbers are merciless. State Bank of Pakistan data reveals that scheduled banks poured an additional Rs5.8 trillion into government securities in the first nine months of 2025 alone, pushing total holdings to Rs35.85 trillion—half of all banking assets. Meanwhile, private sector credit shrank by Rs1.27 trillion. This isn’t a temporary distortion; it’s a structural hijacking. Banks, flush with cheap central-bank liquidity, arbitrage the spread between near-zero policy rates and high-yield Treasury bills, earning risk-free billions without lifting a finger for industry. Factories that could create jobs, exporters that could earn dollars, SMEs that could innovate—all starve while the state gorged on domestic savings. The result is a vicious cycle of fiscal dominance: the government borrows to plug deficits, banks lend safely, private investment collapses, growth stalls, deficits widen, and the loop tightens.
This crowding-out is lethal. Private investment, already a meager 14 percent of GDP—half India’s—has fallen further as credit dries up. Textile mills in Faisalabad operate at 60 percent capacity; Sialkot’s surgical instrument makers lose orders to Vietnam; Karachi’s startups fold for want of working capital. Exports stagnate at $31 billion, imports balloon, and the trade deficit hits $12.58 billion in four months. Jobs for 1.6 million youth entering the workforce yearly simply don’t materialize. The salaried class, just 600,000 strong, shoulders Rs130 billion in Q1 taxes—twice what exporters, wholesalers, and retailers combined contribute—while banks park trillions in government paper. The same debt meant to sustain the economy now strangles it, turning lenders into the only winners and taxpayers into perpetual losers.
Monetary policy, too, lies crippled. With banks overexposed to sovereign bonds, the State Bank’s rate signals misfire. Tighten credit, and the government borrows more domestically, pushing yields higher. Ease rates, and banks still prefer Treasury bills over risky private loans. Inflation lingers at 7.2 percent, real incomes erode, and the rupee wobbles. The finance ministry’s own projections are chilling: unless GDP grows at 5 percent annually, borrowing costs fall, and the primary balance turns positive, debt-to-GDP will climb through 2035. At current trends, interest payments alone could hit 100 percent of revenues by 2030, leaving zero for development.
The human toll is heartbreaking. In Khuzdar, where poverty touches 71.5 percent, a teacher earns Rs50,000 monthly, loses Rs8,000 to tax, and still faces 12-hour loadshedding. In flood-ravaged Sindh, farmers borrow from arthi at 100 percent interest because banks won’t touch agriculture. Women, with 21 percent labor participation, remain locked out of economic life, squandering 20–30 percent of potential GDP. The World Bank warns that 3 percent growth cannot absorb the youth bulge or lift 100 million above $4.20 daily. Every rupee swallowed by debt is a rupee stolen from classrooms, clinics, and factories.
Yet, escape is possible. First, break fiscal dominance by slashing current expenditure 25 percent—trim elite perks, freeze non-essential hiring, auction state assets for Rs3–4 trillion over three years. Second, lengthen debt maturities: issue 10–20-year domestic bonds, tap diaspora sukuk, and pivot external borrowing to concessional multilateral loans. Third, restore private credit: cap bank holdings of government securities at 40 percent of assets, impose progressive taxes on Treasury-bill profits, and channel Rs2 trillion annually to SMEs, exporters, and green industries via the SBP’s refinancing schemes. Fourth, broaden non-bank financing: revive the Pakistan Stock Exchange, incentivize pension funds and insurance companies to buy infrastructure bonds. Fifth, impose ironclad discipline: tie PSDP releases to revenue growth, publish quarterly debt sustainability reports, and make every borrowed rupee justify measurable returns.
The banking sector must be dragged out of its comfort zone. Cheap risk-free returns have made it lazy. The State Bank should penalize excess government exposure and reward private lending with lower reserve requirements. Export finance at 5 percent, SME loans at 8 percent, and green projects at 3 percent can unlock Rs5 trillion in productive credit within five years.
Pakistan’s debt crisis is not a numbers problem; it is an institutional one. The state has become the economy’s biggest parasite, and banks its willing enablers. Without coordinated reform—fiscal forecasting aligned with monetary policy, transparent debt management, and a ruthless shift of credit from government to people—no IMF tranche, no Chinese rollover, no Saudi deposit will save the day. The warning signs flash red: debt at 70.2 percent, growth at 3 percent, private credit vanishing. Unless policy corrects the imbalance between state borrowing and private enterprise, the cycle will repeat—at ever higher cost.
For the teacher in Khuzdar, the factory worker in Faisalabad, the mother rationing medicine—this Rs80.5 trillion mountain is not abstract. It is stolen classrooms, closed factories, and deferred dreams. The government has the tools: political will, IMF leverage, and a youth bulge hungry for opportunity. Use them. Break the loop. Tax power, not just people. Lend to factories, not just Treasuries. Borrow for tomorrow, not yesterday. Pakistan is living on borrowed money and borrowed time. The clock ticks louder. Reform now, or watch the economy suffocate under its own debt.