KARACHI: Pakistan’s central government debt declined by Rs 430 billion during the first two months (July-Aug) of the current fiscal year (FY26).
According to the State Bank of Pakistan (SBP), the country’s overall debt stocks (including domestic and external) dropped to Rs 77.458 trillion by the end of August 2025, compared with Rs 77.888 trillion in June 2025.
The SBP statistics showed that the bulk of the decline came from domestic debt, which contracted by Rs 398 billion to Rs 54.073 trillion in July-August FY26, down from Rs 54.471 trillion.
Sharp fall in domestic debt have been witnessed due to lower borrowing by the federal government followed by the transferred of profit by the SBP to the federal government.
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Economists noted that while the reduction in government debt during the early months of FY26 provides some relief, the country continues to face significant debt sustainability challenges due to massive stock of the domestic and external debt.
The SBP posted a strong profit of Rs 2.5 trillion in the last fiscal year, out of which Rs 2.4 trillion was transferred to the federal government. This inflow has helped ease the overall debt burden on the economy.
After receiving profit from the SBP, on August 29, 2025, the Debt Management Office Ministry of Finance executed monumental repayment of Rs 1.133 trillion, which brings the total early retirement of SBP debt to Rs 1.633 trillion during calendar year 2025.
At the same time, the transfer of SBP profits led to a sharp decline in net budgetary borrowing from the banking system, creating space for banks to increase their lending to the non-government sector.
According to SBP, within domestic debt, long-term obligations witnessed a significant reduction. Long-term debt fell by Rs 298 billion, slipping from Rs 45.651 trillion in June 2025 to Rs 45.353 trillion in August 2025. Similarly, short-term debt also declined by Rs 105 billion, falling to Rs 8.654 trillion from Rs 8.759 trillion in the corresponding period of last fiscal year.
However, debt under Naya Pakistan Certificate increased from Rs 62 billion to Rs 66 billion in the first two month of this fiscal year.
Pakistan’s external debt, measured in rupee terms, registered a modest decrease of Rs 32 billion. The stock of external debt stood at Rs 23.385 trillion at the end of August 2025 compared with Rs 23.417 trillion in June 2025.
The SBP has recently reiterated the need for continued reforms, emphasizing the importance of broadening the tax base and restructuring loss-making state-owned enterprises. Such measures, it noted, would create additional fiscal space for social and development spending while strengthening buffers to absorb future economic shocks.
Copyright Business Recorder, 2025
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