Pakistan's Debt Swells to Rs 90.98 Trillion as Growth Outpaces Ratio

Pakistan's public and publicly guaranteed debt rose by Rs 6.21 trillion in one year, reaching Rs 90.98 trillion by the end of June 2026, up from Rs 84.77 trillion in June 2025.

The 7.3 percent increase was confirmed by a senior Finance Ministry official. Despite the jump, the debt-to-GDP ratio fell by 2.6 percentage points, from 74.3 percent to 71.7 percent, because the economy grew faster in nominal terms.

What drove the surge in Pakistan's debt?

The bulk of the increase came from domestic borrowing. Domestic debt rose by Rs 4.93 trillion, from Rs 56.7 trillion to Rs 61.65 trillion. The official linked the rise to interest-rate changes, noting that a large share of domestic debt carries floating rates.

Only 27 percent of government securities are on fixed rates. The average time to maturity of domestic debt is about 3.8 years, but its average time to re-fixing is just 1.4 years, leaving the portfolio highly sensitive to rate swings.

External debt grew by Rs 1.29 trillion, from Rs 28.06 trillion to Rs 29.35 trillion. About 60 percent of it is on fixed rates, 90 percent is long-term, and its average time to maturity is over six years, giving it a more stable cash-flow profile.

Why did the debt-to-GDP ratio fall despite higher debt?

Nominal GDP expanded enough to offset the debt rise. The senior official credited nominal GDP growth, a federal primary surplus of Rs 2.18 trillion, and debt buybacks for the ratio decline.

Pakistan's primary surplus indicates that fiscal revenues exceeded non-interest expenditures by Rs 2.18 trillion, a rare achievement for a country that has run deficits for most of the past decade.

Debt buybacks, where the government repurchases its own securities at a discount, reduced the stock of high-cost debt and helped improve the debt profile.

How did interest payments change?

Interest payments fell by Rs 1.94 trillion, or 21.7 percent, from Rs 8.88 trillion in FY25 to Rs 6.95 trillion in FY26. The drop reflects both the lower cost of newly issued debt and the impact of the primary surplus, which reduced the need for borrowing to service debt.

When interest outlays shrink, the government frees up fiscal space for development spending or social programmes, a factor that will be watched by the World Bank and IMF as Pakistan continues its reform agenda.

What is the composition of government guarantees?

Outstanding government guarantees totalled Rs 4.28 trillion, including Rs 2.23 trillion domestic and Rs 2.24 trillion external. Guarantees represent contingent liabilities that can become actual debt if the guaranteed projects default.

The Finance Ministry has earlier shared a detailed breakdown of Pakistan's external debt, showing the share of multilateral, bilateral and commercial lenders.

Historical context of Pakistan's debt trajectory

Pakistan's debt has been on an upward path since the early 2000s, driven by large fiscal deficits, a weak tax base and periodic balance-of-payments crises. The country's external debt crossed the Rs 20 trillion mark in 2018, prompting a series of IMF programmes.

Since 2020, the government has pursued a mix of austerity measures, tax reforms and external borrowing to stabilise the economy. The most recent IMF programme, approved in 2023, set a target of bringing the debt-to-GDP ratio below 70 percent by 2027.

Reaching Rs 90.98 trillion places Pakistan among the world's most indebted emerging markets, but the falling ratio suggests that growth is beginning to outpace borrowing.

Implications for households and businesses

With total public debt at Rs 86.7 trillion, every Pakistani owed around Rs 333,000, according to the official calculation. While this per-capita figure does not translate directly into personal debt, it signals the fiscal pressure on the state's ability to fund public services.

Higher domestic borrowing can push up government bond yields, raising borrowing costs for private firms that rely on the same market. Conversely, the decline in interest outlays may reduce the risk of sudden tax hikes.

What to watch next

The Finance Ministry is expected to publish a detailed debt sustainability analysis later this year, outlining the projected path of debt under different growth scenarios.

Key indicators to monitor include: nominal GDP growth rates, primary surplus trends, the share of floating-rate domestic debt, and the pace of external debt repayments.

International investors will also watch the upcoming IMF review, which will assess whether Pakistan is on track to meet its debt-reduction targets.

Finally, any changes in the domestic interest-rate policy by the State Bank of Pakistan will directly affect the cost of the large floating-rate component of domestic debt.