Govt debt rises to Rs82tr

The federal government's debt rose to Rs82 trillion by end of May, registering an annual increase higher than the average inflation rate, as Pakistan's top audit office has sought strong checks within the finance ministry to ensure actual borrowing requirement to repay the debts.

The two separate reports by the central bank on Monday and the audit objection by the Auditor General of Pakistan (AGP) last week came at a time when the country's top debt management office remains headless even after six months. The debt office has been run on an ad-hoc basis since January this year and no accountability can be ensured in the absence of a permanent executive at the top level.

The State Bank of Pakistan (SBP) reported on Monday that the federal government's total debt, excluding liabilities and the International Monetary Fund (IMF) debt, increased by Rs5.9 trillion during the June-May 2025-26 period. The debt burden increased by 7.8%, which was more than the average inflation rate of 7%, showing that the country's debt management remains poor and its fiscal needs are higher than revenues. As a result, the debt stocks rose to Rs82 trillion by end of May, according to the new debt bulletin.

The AGP audit report further revealed that the federal government was not preparing Debt and Losses reports in breach of the Financial Reporting Manual. The report is required to provide an analysis of the national debt position at the end of each month.

Coincidentally, in May this year the Senate Standing Committee on Finance raised the issue of the vacant position of Director General Debt Office. An advisor, Omar Khan, was representing the debt office in the standing committee meeting. On May 19, Khan told the standing committee that the government was currently in the process of shortlisting candidates. However, he could not give a firm date for the appointment. After the story was published in The Express Tribune, the Prime Minister's Office had also inquired about the vacant position of the DG debt.

There is only one permanent director debt out of three positions that exist. The finance ministry has given the additional charge of two directors to a consultant on domestic debt and to a risk assessment expert.

Despite repeated commitments to the IMF and the World Bank, the country's Debt Management Office is operating under capacity, and the Ministry of Finance seems disinclined to reinforce it. The issues of debt management have also been framed in the AGP report. The Auditor General of Pakistan has framed an audit objection against the finance ministry for what it called an irrational budgeting of Rs1.83 trillion for principal loan repayment. "The audit observed that the irrational budgeting resulted in unnecessary excess expenditure of Rs1.83 trillion," reads the audit report for the fiscal year 2024-25 released last week.

During the audit of the appropriation accounts for the fiscal year 2024-25, it was noticed that the federal government allocated funds of Rs24 trillion for principal payment of loan. It further allocated Rs2.64 trillion as supplementary grant but then surrendered Rs2.8 trillion. However, subsequently the spending remained at Rs25.8 trillion, which was more than the money that the finance ministry had set aside.

The auditors said that the "controls and checks within the Ministry of Finance require strengthening to ensure accurate assessment of the actual requirements under repayment of debt".

According to the SBP's debt bulletin, overall Rs5.9 trillion were added to the debt stock during the June-May period, at an average of Rs16 billion per day.

During the last fiscal year, the rupee gained against the US dollar, appreciating to Rs278.4 to a dollar. This stability helped in a slow increase in external debt. The external federal government debt increased from Rs22.5 trillion to Rs23.8 trillion – a jump of Rs1.3 trillion that was low compared to previous trends due to the stable rupee.

The federal government's short-term external debt skyrocketed from Rs201 billion a year ago to Rs2.7 trillion by May this year. The central bank said the jump was because of reclassification of long-term debt to short-term debt. It did not give further details.

The federal government's total domestic debt increased to Rs58.1 trillion, rising by Rs4.7 trillion within one year. The increase was both in the government's long-term and short-term debts. The long-term domestic debt jumped from Rs45.2 trillion to Rs47.3 trillion – an addition of Rs2 trillion within one year. The short-term domestic debt increased by Rs2.6 trillion within one year, according to the central bank. The short-term debt increased from Rs8.1 trillion to Rs10.7 trillion – a surge of 32% in the middle of declining interest rates.

The growing debt burden has also pushed the cost of interest payments to over Rs8 trillion for this fiscal year.