In the last fiscal year, Pakistan’s public debt exceeded the sustainable limit due to substantial interest payments, overshadowing the benefits from exchange rate stability and spending cuts, according to the Debt Policy Statement 2025.

Debt-to-GDP Ratio Concerns

The government was unable to reduce the debt-to-GDP ratio to the targeted 56.75 percent by June 2024, instead, it reached 67.5 percent.

Interest Payments Impact

Despite a decrease in the federal primary deficit and economic growth driven by inflation, rising interest costs were a significant burden. The central bank’s policy rate climbed to 22 percent, resulting in the government spending Rs. 8.2 trillion on interest payments. Consequently, total public debt increased by 13 percent to Rs. 71.2 trillion, with domestic debt at Rs. 47.2 trillion and external debt at Rs. 24.1 trillion.

Lack of Timely Updates

The report criticized the government for not providing timely updates on debt indicators, including guarantees related to public-private partnerships.

Debt Maturity Profile Issues

Pakistan’s debt maturity profile is problematic, with domestic debt averaging just 2 years and 8 months, leading to a reliance on short-term borrowing from commercial banks. External debt maturity was also shortened to 6 years and 2 months.

Exploring Alternative Funding

The finance ministry plans to explore alternative funding sources such as Green Sukuk, sustainability-linked bonds, Panda bonds, debt-for-nature, and debt-for-climate swaps to manage debt obligations.
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