Finance ministry claims surge contained: public debt swells to Rs80.5trn in FY25

ISLAMABAD: Pakistan’s total public debt swelled by 13 percent to Rs80.5 trillion in fiscal year 2025, though the Finance Ministry claimed the surge was contained compared to previous years due to what it says historic fiscal discipline and proactive debt management.

According to the Finance Ministry’s Annual Debt Review 2025 released on Tuesday, domestic debt accounted for Rs54.5 trillion (68 percent) of the total, while external debt stood at Rs26 trillion (32 percent). The report noted that the federal fiscal deficit of Rs7.1 trillion was the main driver of debt accumulation, with 91 percent financed from local sources.

The ministry highlighted a “significant shift” in the maturity profile, with short-term treasury bills declining and long-term bonds and Sukuk instruments gaining share. Average Time to Maturity for domestic debt rose to 3.8 years from 2.8 years, reducing rollover risks.

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Key “achievements” cited included the first-ever early debt repayments of over Rs1.5 trillion, the launch of a Green Sukuk, and a reduction in external debt’s share from 38 percent to 32 percent of total stock, lowering exchange rate exposure.

External debt increased by 6 percent YoY, reaching USD 91.8 billion as of June 25. The major reasons for this increase were disbursements from the IMF, an ADB-guarantee-backed commercial loan of USD 1bn, and inflows from other multilateral institutions.

Composition-wise, multilateral loans (including loans from the IMF) account for 57 percent, bilateral loans 26 percent, followed by commercial sources such as Euro/Sukuk bonds, commercial banks, and Naya Pakistan Certificates (NPCs). Importantly, the majority of external loan sources continue to be multilateral and bilateral, which are generally of long-term tenor and have concessional rates. They have less refinancing and interest rate risk.

The share of bilateral official loans continued to decline because of net retirement. However, bilateral deposits from friendly countries were rolled over and now represent 9.8 percent of total external debt.

Finance Division also underscored savings of Rs850 billion in interest payments, narrowing Eurobond yields to 6-9 percent, and closing the fiscal deficit well below the budgeted Rs8.5 trillion.

On the macro front, fiscal year 2025 saw GDP growth of 2.7 percent, average inflation plunged to 4.6 percent from 23.8 percent a year earlier, and a rare current account surplus of USD2.1 billion driven by record remittances of USD38 billion.

The debt-to-GDP ratio, however, edged up to 70 percent from 68 percent due to slower nominal GDP growth as inflation eased.

Looking ahead, the government has rolled out a new Medium-Term Debt Strategy (FY26-28) that prioritizes longer-term borrowings, reduces reliance on treasury bills, and hedges against currency risks. It also plans to diversify funding sources, including a Panda Bond issuance in China.

During fiscal year 2025, the government issued fresh and renewed guarantees aggregating to PKR 504 billion, equivalent to 0.44 percent of GDP. The outstanding stock of guarantees stood at PKR 4,265. Billion at the end of June 2025, including the self-liquidating guarantees issued for commodity operations, which were disclosed separately in the previous reports.

The Breakdown of government guarantees shows approximately 57 percent of the guarantees are issued for the power sector entities, followed by commodity operations with 20 percent, obtained by SOEs such as TCP and Passco. In terms of interest rate type, approximately 52 percent are against floating rate loans and 42 percent are against fixed rate debt.

Copyright Business Recorder, 2025