Central govt debt falls 1.6pc in Q1

KARACHI: Pakistan’s government debt fell by Rs1.283 trillion, or 1.64 per cent, at the end of September, driven by reduced borrowing requirements amid a budget surplus.

The debt decreased to Rs76.6 trillion by the end-September 2025, down from Rs77.9 trillion at the end of June, data from the State Bank of Pakistan (SBP) showed on Friday.

The debt saw a slight decline of 1.1 per cent compared to the previous month. However, it rose by 10.1 per cent when compared to September 2024, highlighting the government’s reliance on both domestic and external financing due to ongoing fiscal needs.

The country’s gross public debt dropped by 1.73 per cent, totalling Rs79.1 trillion by the end of the first quarter of FY26, down from a record Rs80.5 trillion at the end of June. As of the end of September, Pakistan’s total debt and liabilities declined to Rs92.65 trillion compared to Rs94.2 trillion by the end of June. However, compared to September 2024, there was a 7.4 per cent increase in total debt and liabilities.

“Public debt decreased due to highest ever quarterly fiscal surplus run by the government during the first quarter,” said Awais Ashraf, director of research at AKD Securities Limited.“Moreover, external debt reduced by 1.2 per cent since June due to repayment of $430 million and rupee appreciation,” Ashraf added.

Pakistan recorded a fiscal surplus of 1.6 per cent of GDP, or Rs2.1 trillion, in the first quarter of FY26, compared to a surplus of 1.7 per cent during the same period last year, thanks to receiving substantial profits of Rs2.42 trillion from the central bank. The SBP reported higher-than-average profits and dividends in FY25 due to record-high open market operation positions.

At the end of September, domestic debt reached Rs53.4 trillion, showing a year-on-year (YoY) increase of 12.4 per cent. However, it witnessed a decline of 1.2 per cent month-on-month (MoM) and a 1.92 per cent drop compared to June, primarily driven by a reduction in the government’s domestic borrowing.

Saad Hanif, head of research at Ismail Iqbal Securities, explained that the drop in the government’s borrowing needs was largely due to a reduced reliance on short-term instruments. Market Treasury Bills saw a significant decline, falling 25.6 per cent YoY and 3.0 per cent MoM.

“Long-term instruments continue to gain share, with PIBs [Pakistan Investment Bonds] increasing 25.2 per cent YoY, signalling a deliberate shift toward lengthening maturities and mitigating rollover pressures,” Hanif said.

External debt stood at Rs23.2 trillion by the end of September, up 5.2 per cent from a year earlier.

The foreign debt fell by 0.9 per cent compared to the previous month. Hanif attributed this reduction to the constrained external inflows and moderated short-term repayments.

“While the debt profile shows gradual improvement in tenor structure, the overall debt burden continues to edge higher,” he said. “Given this elevated stock of debt and a high-rate environment, a significant share of fiscal resources will continue to be absorbed by interest payments, limiting space for development spending.”

In the first quarter of FY26, the country’s external debt servicing payments amounted to $3.546 billion, down from $18.049 billion a year earlier. Of this total, $1.192 billion was paid in interest, a decrease from $5.338 billion in the same period last year, while $2.354 billion was allocated for principal repayment, compared to $12.711 billion last year.

In dollar terms, Pakistan’s outstanding total external debt and liabilities fell to $134.482 billion as of September 30, 2025, from $134.91 billion at the end of June.