Debt devours nearly half of Pakistan's budget

ISLAMABAD: Pakistan’s debt servicing will eat up 46.7 per cent of the federal budget in the next fiscal year 2025-26, a staggering Rs8.2066 trillion out of the Rs17.573 trillion total federal budget outlay.

This allocation represents the largest sum out of current expenditures of the government dedicated to interest and loan repayments.

This allocation marks an 8.26% down — Rs739 billion less — from revised spending of Rs8.945 trillion in the outgoing fiscal year. The increase further tightens the fiscal noose, squeezing funds for essential services like health, education, and development.

Domestic debt servicing alone will cost Rs7.197 trillion, with Rs1.009 trillion allocated for foreign loan repayments. Pakistan’s public debt stood at a staggering Rs76.01 trillion (US$269 billion) by end-March 2024 — more than quadruple over the past decade — comprising Rs51.52 trillion in domestic and Rs24.49 trillion in external liabilities. Public debt has now reached 66.27% of GDP, breaching legal limits under the Fiscal Responsibility and Debt Limitation Act (FRDLA).

This debt drag has already drained the exchequer: in the first nine months of FY25, Rs6.44 trillion was paid in interest — 66% of the full-year debt servicing target. Of this, Rs5.78 trillion went to domestic lenders and Rs656 billion to foreign creditors.

Despite the Ministry of Finance’s claims of better cash-flow planning and longer-term borrowing tools, the debt spiral continues. Mounting repayments have crowded out private investment, weakened the rupee, spurred inflation, and deepened reliance on borrowing — fueling a vicious fiscal cycle.

Gross external inflows stood at $5.07 billion during July-March FY25 — largely from multilaterals ($2.8 billion), commercial sources ($2.01 billion), and bilateral partners ($258 million) — but the country failed to tap capital markets, issuing no global bonds during the period.

Meanwhile, external outflows exceeded inflows at $5.636 billion, dominated by repayments to multilateral creditors ($2.828 billion), bilateral partners ($1.565 billion), and commercial lenders ($1.243 billion), adding further strain on foreign exchange reserves.