Pakistan’s public debt trajectory remains a focal point of economic policy, with efforts underway to bring it within sustainable limits as outlined in the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005. While recent years have seen a reduction in the debt-to-GDP ratio, the government has struggled to meet its stipulated targets. The latest debt report from the Ministry of Finance highlights both progress and persistent gaps in fiscal management, raising concerns about the country’s ability to adhere to long-term debt reduction commitments.

Although progress has been made in steering the country’s debt trajectory downward, the government has fallen short of meeting the broader target of reducing total public debt, as mandated by the Fiscal Responsibility and Debt Limitation Act, which was enacted with parliamentary approval. The administration has struggled to fulfill its commitment—primarily due to persistent fiscal imbalances despite pledging to curb public debt. It remains to be seen whether parliament will assert its authority by demanding accountability for this repeated inability to adhere to the prescribed debt limits. According to the Ministry of Finance’s latest debt report, the nation’s total public debt surged to Rs71.2 trillion by the end of FY2024, marking a sharp rise from Rs62.8 trillion in FY2023—an increase of Rs8.34 trillion within a single year.

Over the course of FY2024, public debt grew by 13 percent, reaching Rs71.24 trillion by June 2024. Of this, Rs47.16 trillion was classified as domestic debt, while external debt—denominated in rupees—stood at approximately Rs24.08 trillion. Moving into Q1 FY2025, public debt saw a marginal uptick of 1.3 percent, pushing the total to Rs72.13 trillion. Encouragingly, the debt-to-GDP ratio declined by 7.7 percent, settling at 67.2 percent by the end of June 2024, compared to 74.9 percent in FY2023.

External debt continued its upward trajectory in Q1 FY2025, reaching $88.7 billion as of September 2024. In terms of composition, multilateral development financial institutions—including the International Monetary Fund (IMF)—accounted for 56 percent of Pakistan’s external debt. Bilateral creditors, such as the Paris Club, constituted the second-largest source, making up roughly 28 percent. Commercial borrowing formed 14 percent, while international bond issuances and loans from commercial banks comprised 8 percent and 6 percent, respectively.

During FY2024, the total stock of external debt (in USD) recorded a net year-on-year increase of 3 percent. However, its share in overall public debt declined from 38 percent in June 2023 to 34 percent by June 2024. While the nation’s external debt exposure remains within the 40 percent threshold set by the Medium-Term Debt Strategy (MTDS), it continues to be highly susceptible to exchange rate fluctuations.

According to the Debt Policy Statement prepared by the Ministry of Finance for parliamentary submission, Section 3 of the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005 outlines key principles for prudent fiscal and debt management. Under this framework, the federal government is obligated to implement measures aimed at curbing the fiscal deficit (excluding grants) and keeping the total public debt-to-GDP ratio within defined limits. Initially, the FRDLA set this ceiling at 60 percent until FY2017-18, mandating a gradual reduction of 0.5 percent annually until FY2022-23, followed by a steeper annual decrease of 0.75 percent until FY2032-33. The ultimate goal is to bring the debt-to-GDP ratio down to 50 percent and maintain it at or below that threshold in the long run.

As of September 2024, total public debt stood at 67.2 percent of GDP, exceeding the FRDLA’s target of 61 percent, thereby missing the intended mark. Despite this shortfall, debt reports indicate a declining trend in public debt levels. The debt-to-GDP ratio, which stood at 73.9 percent in FY2022 and rose slightly to 74.3 percent in FY2023, saw a significant reduction to 67.2 percent by FY2024. When measured in accordance with FRDLA’s definition, total government debt accounted for 61.4 percent of GDP in FY2024, though the stipulated benchmark was set at 57 percent—falling short by 4.4 percentage points.

In terms of sovereign guarantees, total obligations amounted to Rs4.25 trillion ($15.3 billion) by September 2024, a notable increase from Rs3.38 trillion ($12.1 billion) recorded at the end of June 2024. Throughout FY2024, the government issued new guarantees—including rollovers—totaling Rs274 billion, equivalent to 0.26 percent of GDP. By June 2024, the overall stock of guarantees accounted for 4.1 percent of GDP. During the first quarter of FY2025, only a single rollover guarantee worth Rs50 billion was executed.

Roughly 70 percent of these guarantees have been extended to power sector entities, with the remainder primarily backing commodity operations. The uptick in guarantees recorded in September 2024, relative to January 2024, is largely attributed to the inclusion of guarantees issued for commodity financing obtained by state-owned enterprises, specifically the Trading Corporation of Pakistan Limited and the Pakistan Agricultural Storage & Services Corporation Limited—entities that were previously listed separately in earlier reports.

Although Pakistan has managed to reduce its public debt-to-GDP ratio in recent years, the government continues to miss key targets set under the FRDLA. The rising stock of sovereign guarantees, particularly in the power and commodity sectors, adds another layer of financial responsibility. Moving forward, stricter fiscal discipline and structural reforms will be crucial in ensuring that public debt remains within sustainable limits, safeguarding economic stability in the years ahead.