Pakistan’s public debt has surged to an unprecedented Rs80.5 trillion by June’s end, with a staggering daily increase of Rs25.4 billion, defying legislative limits and straining the nation’s fiscal resilience. Official data highlights the growing burden, raising alarms about the sustainability of the country’s financial trajectory.
Pakistan’s national debt has soared to a historic high of Rs80.5 trillion by the close of the last fiscal year, accumulating at a rate of Rs25.4 billion per day, breaching parliamentary regulations and severely undermining the government’s capacity to manage its financial obligations, according to official records. The State Bank of Pakistan (SBP) published its debt bulletin for the 2024-25 fiscal year, revealing a sharp rise in public debt both in absolute figures and as a proportion of the economy. This dual escalation signals a perilous trend of unsustainable borrowing that threatens the nation’s economic stability.
By June’s end, gross public debt reached Rs80.5 trillion, marking a Rs9.3 trillion or 13% increase compared to the previous fiscal year, as per the central bank’s findings. This equates to an average daily borrowing of Rs25.4 billion throughout FY25. Relative to the economy, the debt-to-GDP ratio climbed from 67.8% to 70.2%, contravening the Fiscal Responsibility and Debt Limitation Act, which mandates an annual reduction of 0.5 to 0.75% of GDP until the ratio hits 50% by 2032-33. Yet, the coalition government has failed to comply with the critical legal obligation.
The escalating debt has crowded out investments in critical sectors, with nearly half the national budget diverted to servicing interest payments. Despite this, political pressures from coalition allies continue to drive spending on high-profile projects, prioritising political gains over fiscal prudence.
In total, Pakistan’s debt and liabilities reached Rs94.2 trillion by June, equivalent to 82.1% of GDP, as reported by the central bank. The ballooning debt, both in absolute terms and relative to GDP, casts a shadow on the International Monetary Fund (IMF), which has struggled to enforce fiscal discipline in Pakistan. The breach of statutory debt limits underscores the unsustainability of the country’s financial burden. Nonetheless, the IMF has maintained that Pakistan’s debt remains manageable, likely to avoid the complexities of immediate debt restructuring. The primary driver of this debt surge has been the need to finance the federal fiscal deficit, with interest payments forming a significant portion. Consequently, Pakistan’s financing needs remain alarmingly high, hovering between 20% and 23% of GDP, well above the 15% threshold considered sustainable for a developing nation like Pakistan.
The central bank’s data revealed that domestic debt skyrocketed from Rs47.2 trillion to Rs54.5 trillion within a single fiscal year, a Rs7.3 trillion or 15.5% jump. This growth outpaced both economic expansion and inflation by threefold. External debt also rose, climbing from Rs21.8 trillion to Rs23.4 trillion, an increase of Rs1.7 trillion, despite relative stability in the local currency.
Most of Pakistan’s external debt comes from concessional multilateral and bilateral sources. However, the increasing reliance on short-term debt in recent years heightens refinancing risks, further elevating gross financing requirements. Fixed-rate debt constitutes roughly two-thirds of the external debt portfolio.
Pakistan’s fiscal health remains precarious, particularly in light of recent catastrophic floods, which are likely to exacerbate pressures on the primary balance and public debt. A finance ministry report warned that limited fiscal flexibility could lead to a sharp deterioration in the primary balance. Should a shock push the primary deficit to historical levels, the debt-to-GDP ratio could surpass the 70% threshold, further jeopardizing debt sustainability, according to last August’s debt office report.
The central bank also noted a 13% increase in IMF-related debt, reaching Rs2.63 trillion by June. Pakistan is currently under a $7 billion IMF bailout package—its 25th such program—aimed at stabilizing fiscal and external accounts.
Soaring debt levels have driven debt servicing costs to unprecedented heights. The SBP reported that Rs13.2 trillion was spent on loan repayments and interest costs in FY25, a 10% or Rs1.2 trillion increase from the prior year. Interest payments alone accounted for Rs9.5 trillion, with Rs162 billion (approximately $570 million) paid to the IMF.
In dollar terms, Pakistan’s external debt and liabilities grew to $135 billion by June, up by $4 billion in a single year. The slower pace of external debt growth compared to previous years was partly due to the central bank’s purchase of over $8 billion from the local market.
Pakistan’s spiraling debt crisis, marked by a record-breaking Rs80.5 trillion public debt and a daily borrowing rate of Rs25.4 billion, poses a severe threat to the nation’s economic stability. Breaching legal limits and consuming a significant portion of the budget for debt servicing, the government faces constrained fiscal space, limiting investments in critical sectors. The persistent rise in both domestic and external debt, coupled with vulnerabilities to economic and environmental shocks, underscores the urgent need for robust fiscal reforms to ensure long-term sustainability.