Pakistan’s Public Debt Exceeds Sustainable Limit

Pakistan’s public debt remained above the sustainable limit in the last fiscal year due to big interest payments that negated gains from exchange rate stability and spending cuts, according to the Debt Policy Statement 2025. The government failed to lower the debt-to-GDP ratio to 56.75 percent by June 2024. Instead, the ratio stood at 67.5 percent. Despite a decline in the federal primary deficit and economic expansion due to inflation, interest costs surged as the central bank’s policy rate hit 22 percent. The government spent Rs. 8.2 trillion on interest payments alone. Total public debt rose by 13 percent to Rs. 71.2 trillion while domestic debt touched Rs. 47.2 trillion and external debt Rs. 24.1 trillion. The report criticized the government for failing to provide timely updates on debt indicators, including public-private partnership-related guarantees. Pakistan’s debt maturity profile is unhealthy. Domestic debt has so far averaged 2 years and 8 months, leaving the government reliant on short-term borrowing from commercial banks. External debt maturity was also shortened to 6 years and 2 months. The finance ministry said it would explore alternative funding sources like Green Sukuk, sustainability-linked bonds, Panda bonds, debt-for-nature, and debt-for-climate swaps to manage debt obligations.