Under the International Monetary Fund (IMF) framework, Pakistan’s debt report mentioned a projected decline in the country’s debt-to-GDP ratio from 70.8 per cent to 60.8 per cent over the next three years.
According to the Ministry of Finance, by June 2025 Pakistan’s total debt exceeded Rs84 trillion, marking an increase of more than Rs10 trillion in a year. Gross financing needs are expected to remain high at 18.1 per cent by 2028. The ministry recorded savings of Rs888 billion in interest payments during the previous year.
The report anticipated debt sustainability during the medium term between fiscal years 2026 and 2028. Moreover, the report also highlighted several risks and challenges to debt stability. Economic slowdown has been identified as a key threat to debt sustainability, while changes in exchange and interest rates could increase the debt burden.
External shocks and climate change may further heighten debt risks. The floating rate structure of a large portion of the loans keeps interest rate exposure high. Domestic debt accounts for 67.7 per cent of Pakistan’s total debt.
The Ministry of Finance confirmed that 80 per cent of total borrowing is on a floating rate, maintaining the risk of rate volatility. Short-term debt constitutes 24 per cent of total borrowing, keeping refinancing pressures intact. External debt forms 32.3 per cent of the total, mostly concessional loans from bilateral and multilateral sources. Floating external debt stands at 41 per cent, reflecting a medium-level risk. Rising current account deficits and declining foreign exchange reserves remain areas of concern.
The report said that fiscal discipline and economic stability will ease debt pressures. Strengthening exports and the IT sector is expected to support foreign exchange stability. Transparency in debt issuance has improved investor confidence, while progress in sustainable development, technology and competitiveness has enhanced debt management. However, a fall in revenue or a rise in expenditure could affect the primary balance, and contingent liabilities may also emerge.
Economic growth improved from 2.6 per cent to 3.0 per cent in the last fiscal year, with projections indicating a rise to 5.7 per cent over the next three years.
The Ministry of Finance reported that inflation declined from 23.4 per cent to 4.5 per cent, with a forecast of 6.5 per cent by 2028. Since June 2024, the policy rate has been reduced by 1,100 basis points. The foreign exchange market has stabilised, and external payment pressures have eased.
The federal fiscal deficit was contained at 6.2 per cent against the 6.8 per cent target, while the primary balance showed a surplus of 1.6 per cent. A surplus of at least 1.0 per cent is expected to continue in the medium term, supported by higher revenue, lower expenditure and reduced interest payments.
