Govt claims debt burden easing

The federal government has projected a steady improvement in Pakistan's debt sustainability over the next three years, estimating that the debt-to-GDP ratio will fall from the current 70.8% to 60.8% under the IMF framework.

According to a new report released by the finance ministry, Pakistan's debt outlook for the medium term — from fiscal year 2026 to 2028 — remains stable and sustainable.

The report revealed that by June 2025, the country's total public debt had exceeded Rs84 trillion, marking an increase of more than Rs10 trillion over the past year. Despite the growing debt stock, financing needs are projected to remain high, standing at 18.1% through 2028.

The report further stated that Pakistan achieved savings of Rs888 billion in interest payments over the previous year, reflecting better fiscal management and reduced borrowing costs. However, it also outlined a number of challenges and risks to debt stability.

It warned that slow economic growth continues to pose a significant threat to debt sustainability. Exchange rate fluctuations and variations in interest rates could further increase the debt burden, while external shocks and the climate change effects may heighten vulnerability.

The ministry cautioned that the large proportion of floating-rate loans has kept the country exposed to interest rate volatility. As of now, 67.7% of Pakistan's total debt is domestic, while 80% of all loans are based on floating interest rates, maintaining a high level of risk.

Short-term loans account for 24% of total borrowing, keeping refinancing pressures intact. External debt makes up 32.3% of total liabilities, with the majority consisting of concessional financing obtained from bilateral and multilateral partners.

About 41% of the external loans are also on floating rates, which the ministry said keeps a medium-level risk in place. The report expressed concern over potential risks arising from a widening current account deficit and declining foreign exchange reserves.

However, it also highlighted positive developments, stating that fiscal discipline and economic stabilisation could ease the pressure on public debt.

The ministry said that strengthening exports and boosting the IT sector would help stabilise foreign exchange reserves, while greater transparency in debt issuance and enhanced investor confidence have improved debt management.

Officials noted that sustainable growth, technological progress, and competitiveness have led to more effective debt administration. Nevertheless, the ministry cautioned that any decline in revenues or a rise in expenditures could affect the primary balance.