Public debt rises to Rs74.9tr ahead of FY26 budget

KARACHI: Pakistan’s public debt rose to Rs74.936 trillion by the end of April, central bank data showed on Wednesday, as the government eyes continued fiscal consolidation in line with International Monetary Fund (IMF) commitments ahead of next week’s FY26 budget.

From July 1, 2024 to April 30, 2025, the central government’s debt increased by 8.73 per cent, or Rs6.022 trillion. The central government debt had reached Rs68.914 trillion at the end of June.

The debt increased by 13.4 per cent year-on-year (YoY) and 1.7 per cent month-on-month (MoM) in April.“The central government’s debt is rising primarily to cover interest payments on existing debt,” said Awais Ashraf, director of research at AKD Securities Limited.

“On a positive note, the government is expected to generate a primary surplus of approximately Rs2.3 trillion this year, indicating the government has Rs2.3 trillion more funds than its expenditure other than interest expense,” Ashraf said.

“In terms of debt composition, the government is shifting reliance on Pakistan Investment Bonds (PIBs) while simultaneously reducing its dependence on Treasury bills (T-bills), which are short-term in nature,” he added.

Ashraf expects the debt-to-GDP ratio to maintain its previous year’s level of 65.5 per cent this year. However, debt-to-GDP is significantly lower than 71.7 per cent in FY22 due to prudent spending and a three-times increase in government revenue.

The amount of public debt has been increasing recently, and the rising cost of debt servicing puts a strain on the finances of the nation. But since June, the SBP has lowered its benchmark interest rate by 1,100 basis points, reflecting a reduction in inflationary pressures. The decline in interest rates will likely help the government reduce its markup payments on domestic borrowings.

In April, Pakistan’s domestic debt surged by 18.1 per cent YoY, reaching Rs52.523 trillion, and increased by 2.0 per cent MoM. Overall, the domestic debt rose by 11.37 per cent by the end of April.

The external debt saw a modest rise, reaching Rs22.413 trillion by the end of April. This represents a 3.8 per cent increase year-on-year and a 1.1 per cent increase month-on-month. External debt grew by 8.0 per cent over a period of 10 months.

Pakistan’s fiscal performance has shown improvement, with a budget deficit of 2.4 percent of gross domestic product (GDP), totalling Rs2.97 trillion for the July-March period of FY25. This is an improvement compared to the 3.7 per cent deficit recorded during the same period the previous year. However, the Federal Board of Revenue (FBR) missed its revenue collection target by nearly Rs1.008 trillion in the first 11 months of FY25, primarily due to slowing economic growth and a drop in imports.