EDITORIAL: The State Bank of Pakistan’s (SBP’s) recently released data indicates a decline in debt stocks – by 1.283 trillion rupees during the first quarter (July-September) of the current year, supported by higher SBP profits.
The overall debt stock stood at 77.888 trillion rupees by end June 2025 with the bulk of the reduction attributed to decline in domestic debt which contracted from 1.048 trillion rupees to 53.424 trillion rupees in September 2025.
There are three obvious observations on this decline. First and foremost, the decline in the discount rate from 21 percent in June 2024 to 11 percent in June 2025 (a rate that persists to this day). It is relevant to note that the Finance Minister has repeatedly projected a further decline in the discount rate within this calendar year though he hastened to add that, unlike in the past, the decision is the prerogative of the SBP – a condition that was agreed and approved by parliament in early 2022.
However, the one major constraint to this projection is the fact that the SBP cannot reduce the rate without consultation with the International Monetary Fund (IMF) under its ongoing 7 billion dollars Extended Fund Facility programme; and all documents and press releases uploaded by the Fund on its website insist on SBP “maintaining an appropriately tight and data-dependant monetary policy…. Floods are likely to have a temporary impact on prices, the SBP stands ready to adjust its policy stance should price pressures intensify, or inflation expectations become unanchored.”
Prices are already projected to rise by 5 to 7 percent this year and likely to be more if the Fund technical assistance that began on 1 July 2025 succeeds in removing “important shortcomings…accounting for around a third of GDP, while there are issues with the granularity and reliability of the Government Finance Statistics” that includes formulating a new Producer Price Index.”
Second, the data released by the Finance Division on the Consolidated Federal and Provincial Fiscal Operations July-September 2025 revealed that domestic borrowing was a high of 1.739 trillion rupees in the first quarter of last year against 2.081 trillion rupees in the first quarter of the current year – a rise of nearly 20 percent, which was injected into meeting current expenditure of the government, an inflationary policy that crowds out private sector borrowing, while 295 billion rupees development expenditure was authorized as per the formula though only around 40 billion rupees was actually disbursed.
And finally, all government debt is not included in the debt stocks – an example could be the 1.2 trillion rupees borrowed from commercial banks recently to retire the circular energy debt, an amount which is approved but has yet to be disbursed.
This will raise the debt stock but is projected to be considered a one-off and not included in the debt stock like in 2013 when the then Finance Minister, Ishaq Dar, borrowed around 400 billion rupees – an action subsequently declared illegal after an investigation by a parliamentary committee.
So far, there is little indication that the government is engaged in reducing its reliance on borrowing – domestically and externally. This would require the government to reduce current expenditure, which, in turn, would reduce the need to generate more tax revenue, with its associated negative impact on industrial output and growth.
While current expenditure as per the budget documents is to decline from 16.390 trillion rupees in the revised estimates of 2024-25 to 16.286 trillion rupees in the current year, yet the reduction is sourced entirely to a decline in the total markup for the current year due to the expectation of a discount rate cut.
To conclude, the Finance Ministry must change its mind-set and desist from following flawed policies of previous administrations and focus on reducing current expenditure items, including civilian and defence non-operational outlays as well as reforming pensions to achieve sustainable growth.
Copyright Business Recorder, 2025
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