Government’s Fiscal Discipline Strengthens Pakistan’s Debt Profile

The federal government said Pakistan’s debt profile has strengthened due to improved fiscal discipline and effective debt management, with the debt to GDP ratio declining from 75.2% in FY2022-23 to an estimated 68.5% in FY2025-26.

 

According to the government spokesperson, Pakistan has posted primary fiscal surpluses for three consecutive years (FY2024–FY2026), while public debt growth during the first 11 months of the current fiscal year slowed to 5%, the lowest level in 15 years, compared with an average annual increase of 13.7% between FY2011 and FY2025. The highest debt growth of 23% was recorded in FY2023.

 

The spokesperson said the rise in public debt was driven by fiscal financing needs rather than any change in debt management policy. Greater reliance on domestic borrowing has helped reduce exposure to exchange rate fluctuations and external refinancing risks.

 

Under the Medium Term Debt Management Strategy (MTDS), the government aims to keep external debt below 40% of total public debt. Currently, Pakistan’s debt portfolio consists of approximately 69% domestic debt and 31% external debt.

 

To diversify its investor base, the government has introduced several financing initiatives, including JazzCash Treasury Bills, InvestPak, National Savings schemes through CDNS, the Roshan Digital Account (RDA) programme, and long term as well as zero coupon Pakistan Investment Bonds (PIBs).

 

The government said long tenor PIBs and Government Ijara Sukuk (GIS) have attracted greater participation from insurance companies and pension funds. Continued fiscal consolidation and investor diversification are expected to reduce reliance on commercial banks while increasing credit availability for the private sector.

 

It also noted that improving macroeconomic conditions, including lower inflation and declining interest rates, have enabled a shift toward medium  and long term PIBs and Sukuk. As a result, the Average Time to Maturity (ATM) of domestic debt has increased from 2.8 years in June 2024 to around 3.9 years, lowering refinancing and rollover risks.

 

The spokesperson clarified that the recent increase in Market Treasury Bill (MTB) issuance was temporary and reflected market conditions influenced by geopolitical uncertainty and changing interest rate expectations.

 

Looking ahead, the government plans to introduce three  and six-month Sukuk aimed primarily at retail investors to further broaden participation in government securities. It expressed confidence that ongoing fiscal reforms and investor diversification would further reduce dependence on bank borrowing, support private sector lending, and contribute to sustainable economic growth.