Domestic, commodity debt: Punjab achieves fiscal milestone
LAHORE: The Punjab government has achieved a fiscal milestone by completely wiping out its domestic and commodity debt in the 2025-26 fiscal year, though the province’s overall debt stock saw a marginal 0.2 percent uptick to Rs1,760 billion by the end of June 2026.
According to official budget documents released on Tuesday, aggressive debt-reduction strategies successfully retired long-standing federal agricultural loans and extinguished a once-ballooning commodity debt liability. The provincial balance sheet is now entirely driven by long-term foreign concessional loans, heavily directed toward agriculture, irrigation, and urban development.
Punjab’s remaining liability portfolio is now exclusively composed of USD6.26 billion (Rs1,760 billion) in external, long-term concessional project and programme loans from multilateral and bilateral partners. While the province’s total debt stock witnessed a minor surge of Rs3 billion to close at Rs1,760 billion at the end of June 2026, its debt-to-GSDP ratio actually improved, dropping to 2.5 percent from 2.8 percent the previous fiscal year.
Domestic debt mainly consisted of loans taken from the federal government, which were completely settled in FY 2025-26, amounting to Rs1.29 billion. It constituted borrowing from the federal government primarily taken for agricultural purposes (SCARP loans for salinity control and reclamation projects) during the period of 1975-2008, at fixed interest rates with an original maturity of 25 years. These loans have been repaid in full during FY 2025-26 while making payments from its own resources.
It noted that the second component of domestic debt relates to commodity operations financing under Food Account-II. Outstanding obligations under this head had increased to Rs629 billion by June 2022 and, in the absence of corrective measures, were projected to reach Rs1,151 billion by June 2024. It highlighted that, recognising the significant fiscal risks posed by this growing liability, the government adopted a prudent debt reduction strategy and retired commodity debt amounting to Rs719 billion over the last three fiscal years. “With the repayment of the remaining Rs13.8 billion during FY 2025–26, commodity debt has been fully extinguished, making FY 2025–26 the first fiscal year in Punjab’s history with zero outstanding commodity debt.”
Moreover, the Punjab government’s external debt portfolio mainly comprises long-term concessional loans obtained from multilateral development partners, amounting to USD5.09 billion, including the World Bank, Asian Development Bank (ADB), Japan International Cooperation Agency (JICA), and International Fund for Agricultural Development (IFAD). The portfolio also includes financing from bilateral partners such as China, Japan, and France, amounting to USD1.17 billion. These loans are on-lent to the province by the federal government to support development priorities.
Broadly, external debt is classified into two categories. Project loans are utilised for financing long-term infrastructure and development projects, while programme loans provide budgetary support and are generally linked to specific policy, institutional, or expenditure reforms.
As per the documents, the agriculture, irrigation and livestock sector remained the major recipient of government borrowing, as its share constitutes 23 percent of the total outstanding, followed by urban and community development at 19 percent, education 18 percent, transport and communication 17 percent, governance 11 percent, health 7 percent, environment 2 percent, energy 1 percent, industries and infrastructure 1 percent and tourism 1 percent.
Copyright Business Recorder, 2026