Debt, liabilities near Rs100tr

Servicing costs fall by Rs1.2tr to Rs12tr in FY26; debt-to-GDP ratio also contracts

ISLAMABAD:

Pakistan's total debt and liabilities mounted to nearly Rs100 trillion by June 2026, eating up Rs12 trillion in servicing costs in the last fiscal year, amid signs of reversal of high indebtedness due to an improvement compared to the size of the economy.

The State Bank of Pakistan (SBP) reported on Wednesday that the nation's total debt and liabilities, 87% of which was public debt, increased to Rs99.6 trillion during fiscal year 2025-26. The debt bulletin showed that within one year the debt burden grew Rs5.2 trillion, or 5.5%.

The country's total debt includes the federal government and the central bank's direct and indirect obligations, which are serviced by the central bank and taxpayers through the Ministry of Finance.

In terms of the size of the economy, the total debt and liabilities contracted to 78.5% of gross domestic product, marking an improvement of 4.2% within a year. However, it was still far higher than the level considered viable for a developing country like Pakistan that has the least resources to sustain such a heavy burden.

The central bank reported that the total debt, excluding liabilities, stood at Rs97.9 trillion by the end of the last fiscal year, showing an increase of Rs6.3 trillion. The International Monetary Fund's (IMF) debt surged 17% to Rs3.1 trillion.

The global lender has disbursed two loan tranches of $2.2 billion under the three-year Extended Fund Facility. About $450 million has also been released as part of the IMF's climate support loan.

Pakistan spent Rs12 trillion in servicing the debt and liabilities during the last fiscal year. In dollar terms, it was equal to $43 billion. However, the amount was Rs1.2 trillion, or 9%, less than the preceding fiscal year due to a reduction in interest rates. Data showed that Pakistan repaid Rs4.5 trillion of principal debt by acquiring fresh debt, reflecting an increase of 29% in a year.

But interest expense went down from Rs9.5 trillion to Rs7.3 trillion, a reduction of nearly one-fourth. It is the largest expenditure in the budget, which is projected to consume Rs8 trillion in the current fiscal year.

Gross public debt, which is the responsibility of the federal government, increased to Rs86.7 trillion in the last fiscal year. It was higher by Rs6.2 trillion, or 7.7%. However, in terms of the size of the economy, the gross public debt decreased from 70.6% to 68.3% of GDP.

Under the IMF programme, Pakistan ran a third consecutive year of primary budget surplus that helped contain the growth in public debt. The primary surplus is calculated after excluding the cost of interest payments. However, the surplus was primarily achieved on the back of higher taxes coupled with some budget tightening through subsidy cuts.

It was rare that the primary budget surplus was recorded for three consecutive years. Had the surplus not been achieved, the country's debt would have shot up much beyond Rs100 trillion and its debt-to-GDP ratio would have been higher than the current levels.

Prime Minister Shehbaz Sharif has not permitted the finance secretary to avail of a foreign appointment because of his better handling of the IMF programme and keeping a tight check on fiscal targets.

In dollar terms, Pakistan's external debt and liabilities rose to $138.6 billion, which were $3.3 billion higher than the preceding fiscal year. However, the external-debt growth was far slower than the prior years due to the less availability of foreign credit and the central bank's decision to rely on local purchases of foreign currency.

State Bank of Pakistan Governor Jameel Ahmad said last month that the central bank cumulatively bought $28 billion from the local market, including $9 billion in fiscal year 2025-26 alone.

Meanwhile, the US State Department has released a report on budget transparency in Pakistan. The government made only limited information on debt obligations, including the major state-owned enterprise debt, publicly available, said the State Department. It added that publicly available budget documents provided a substantially complete picture of most of the government's planned expenditures and revenues, including natural resource revenues.

But the military and intelligence budgets were not subject to adequate parliamentary or civilian public oversight, said the State Department. The report says Pakistan made its enacted budget and end-of-year report widely and easily accessible to the public, including online.

The government did not publish its executive budget proposal within a reasonable period, according to the US State Department. It recommended steps that Pakistan could take to improve fiscal transparency, including making its executive budget proposal publicly available within a reasonable period; disclosing detailed information on government debt obligations, including for state-owned enterprises; and subjecting the military and intelligence agencies' budgets to parliamentary or civilian public oversight.