Public debt jumps 7.7pc to Rs86.72trn

ISLAMABAD: The country’s total public debt rose 7.7 percent to around Rs86.72 trillion by end June 2026, compared with 13 percent growth a year earlier, while the public debt-to-GDP ratio declined to 68.3 percent from 70.6 percent, according to the Annual Debt Review FY2026.

The Ministry of Finance’s Debt Management Office (DMO) said the slower pace of debt accumulation was supported by fiscal consolidation, a federal primary surplus of Rs2.185 trillion and a 22 percent reduction in interest expenditure during fiscal year 2026.

The review showed that domestic debt increased 9 percent to Rs59.441 trillion, while external debt rose 6.8 percent to USD 98.075 billion during the year. Total public debt stood at USD 312 billion in dollar terms.

READ MORE: Govt debt stock rises by Rs5.7trn in FY26

Interest expenditure declined to Rs6.948 trillion in fiscal year 2026 from Rs8.887 trillion in the fiscal year 2025, registering a 22 percent reduction. The federal fiscal deficit consequently narrowed sharply to Rs4.763 trillion from Rs7.089 trillion, while the federal primary surplus increased from Rs1.798 trillion to Rs2.185 trillion.

The report said fiscal consolidation continued to strengthen, with net federal revenues increasing 6 percent year-on-year to Rs10.52 trillion, while total non-interest expenditure grew by only 2.3 percent compared with 15 percent in FY25.

Under the Fiscal Responsibility and Debt Limitation Act definition, total government debt stood at Rs77.168 trillion, equivalent to 60.8 percent of GDP, down from 64.2 percent at end June 2025.

The government financed 75 percent of the federal fiscal deficit through domestic borrowing and 25 percent through external sources during fiscal year 2026. Net external financing increased to Rs1.177 trillion, while net domestic financing stood at Rs3.586 trillion.

The domestic debt portfolio also underwent significant changes, with the stock of Market Treasury Bills rising 25 percent to Rs10.928 trillion, while Sukuk and Bai-Muajjal financing increased 35 percent to Rs8.559 trillion.

The share of floating-rate PIBs declined to 37.2 percent from 43 percent, while the share of fixed-rate PIBs increased to 21.7 percent from 17.2 percent. The domestic debt average maturity stood at 3.82 years, while the Average Time to Refixing increased to 1.3 years.

Commercial banks remained the largest holders of government securities, with their share rising to 70 percent of domestic debt from 64 percent a year earlier. In contrast, the State Bank of Pakistan’s share declined to 5 percent following liability management operations.

On the external side, the government improved the maturity profile, with medium- and long-term debt accounting for 84 percent of external public debt at end-June 2026, up from 76 percent a year earlier. Short-term external debt declined from 24 percent to 16 percent.

Pakistan also returned to international capital markets during fiscal year 2026 after a four-year gap, issuing a USD 750 million Eurobond in April 2026 and a CNY 1.75 billion Panda bond in May 2026.

The report said external borrowing contributed Rs1.177 trillion to financing the fiscal deficit. External budgetary disbursements amounted to USD 15.6 billion, including USD 5.4 billion from multilateral sources, USD 4.9 billion from commercial sources, USD 4.3 billion from bilateral development partners and USD 1 billion through bonds.

During FY-26, External debt increased to USD 98,075 million, or 6.8 percent y/y, which is slightly higher than 6.1 percent increase during same period of previous fiscal years. Multilateral creditors remain the major lending sources, with 45.5 percent of total external debt (USD 44,621 million), followed by Bilateral creditors having 28 percent share (USD 27,310 million) which also includes bilateral deposits.

Commercial borrowing sources, which include Eurobonds and Commercial banks, have a combined share of 13 percent (USD 12,848 million). The IMF’s outstanding grew to USD 11,050 million by June-26, reflecting ongoing programme related disbursements under the EFF and the Resilience and Sustainability Facility.

IMF claims now represent 11 percent of total external public debt, whereas remaining 2 percent is primarily retail lending in the shape of Naya Pakistan Certificates (NPC). Importantly, the majority of external loan sources continue to be multilateral and bilateral, which are generally of long-term tenor and have concessional rates.

As of June-26, 84 percent of Pakistan’s external public debt is held by the Federal Government, while 16 percent is attributable to provincial and sub-national governments. Among the provinces, Punjab remains the largest borrower with USD 6.40 billion (7 percent), followed by Sindh at USD 5.62 billion (6 percent) and Khyber Pakhtunkhwa at USD 2.97 billion (3 percent). The remaining exposure comprises Balochistan at USD 390 million, Gilgit-Baltistan at USD 69 million, and Azad Jammu & Kashmir at USD 180 million, each representing less than 1 percent of total external public debt.

The government also retired Rs1.926 trillion of SBP debt and conducted market debt buybacks worth Rs996 billion during FY26, with Rs1.133 trillion of SBP profits used for debt retirement.

The government guarantees remained elevated at Rs4.283 trillion by end-June 2026, including Rs2.238 trillion in domestic guarantees and Rs2.045 trillion in external guarantees. Fresh and renewed guarantees during the year amounted to Rs812.8 billion, with the power sector accounting for around 56 percent of the outstanding guarantees.

Copyright Business Recorder, 2026