Debt-fueled decade

Pakistan's debt nearly doubled in the past decade, an astronomical increase that was among the highlights of the World Bank's latest International Debt Report. The external debt burden on citizens has risen from $68.7 billion in 2015 to $135.1 billion in 2025, according to the report. Total public debt tells a similar story, having climbed to Rs80.5 trillion by June 2025, an increase of Rs9.3 trillion in a single fiscal year, or roughly Rs25.4 billion added every day. The debt-to-GDP ratio has also blown past the statutory 60% ceiling, reaching 70.7%.

This kind of debt is unsustainable for our relatively small, fledgling economy. Debt servicing absorbed 89% of net federal revenue in FY25, leaving only a sliver for defence, development and social protection. In the FY26 budget, debt servicing alone accounts for nearly half of total federal expenditure. Development spending has been squeezed to just 11% of the budget, down from over 20% two decades ago. While sustainable debt is not a bad thing, and often brings about positive long-term outcomes, every dollar or rupee added to our debt is money we are borrowing from future generations to pay for our malfeasance today.

In the government's defence, it is not as if it has not been able to balance the budget in past years. Pakistan maintained a primary surplus of 1.3% of GDP in FY25 under its IMF programme, rebuilt reserves and began extending the maturity of domestic debt. The government has also retired short-term borrowing and executed sovereign debt buybacks, which made the debt slightly more manageable. It is also worth noting that between the Covid-19 pandemic, the Ukraine war and the Iran war, there have been several external shocks that have caused disproportionate harm to developing countries, whose combined external debt reached a record $9.4 trillion in 2025, with the poorest nations facing the sharpest increases.

But stabilisation is not solvency. We must widen the tax net and introduce other reforms that keep the economy in a surplus while also motivating growth without sacrificing development spending.