The Ministry of Finance has reiterated that Pakistan’s debt trajectory is more sustainable than headline figures suggest, citing improvements in the debt-to-GDP ratio, early repayments of loans, lower interest costs, and a stronger external account.
In a statement issued on Tuesday, the Finance Division stressed that its debt management strategy remains focused on aligning the public debt-to-GDP ratio with the Fiscal Responsibility and Debt Limitation Act, while reducing refinancing and rollover risks and ensuring interest savings for sustainable public finances.
“Absolute numbers, which will naturally rise with inflation, are not meaningful indicators of sustainability in isolation. The appropriate measure of sustainability is debt relative to the size of the economy, i.e., debt-to-GDP, not absolute rupee amounts,” the ministry explained.
Debt-to-GDP Ratio Improves
According to the ministry, Pakistan’s debt-to-GDP ratio has declined from 74% in FY22 to 70% in FY25, demonstrating an improvement in debt sustainability despite challenges. The government also prepaid Rs2,600 billion in loans before maturity, covering both commercial and central bank obligations. This step, it said, not only lowered refinancing risks but also generated hundreds of billions in interest savings.
Fiscal Consolidation and Primary Surplus
On the fiscal side, the federal deficit dropped to Rs7.1 trillion in FY25, down from Rs7.7 trillion in FY24. As a share of GDP, the fiscal deficit narrowed to 6.2% (consolidated deficit 5.4%), compared to 7.3% (consolidated deficit 6.8%) in the previous year.
Pakistan also posted a historic primary surplus of 2.4% of GDP, equivalent to Rs2.7 trillion, for the second consecutive year. As a result, total debt stock rose 13% year-on-year, lower than the average 17% growth over the last five years.
Interest Savings and Debt Maturity Profile
The ministry highlighted that prudent liability management, coupled with interest rate reductions in FY25, delivered Rs850 billion in interest expense savings compared to budget estimates. For FY26, the government has allocated Rs8.2 trillion for interest payments, down from Rs9.8 trillion in FY25.
Early repayments also strengthened Pakistan’s debt maturity profile. Public debt average time to maturity improved to about 4.5 years in FY25 from 4 years in FY24. Within this, domestic debt maturity increased from 2.7 years to over 3.8 years.
External Account Strengthens
On the external front, Pakistan recorded a $2 billion current account surplus in FY25—the first in 14 years. The ministry said this achievement reduced the country’s gross external financing needs. It noted that a portion of external debt growth stemmed from balance of payments support, such as IMF Extended Fund Facility inflows and Saudi Oil Fund arrangements, which do not require rupee financing.
Additionally, about Rs800 billion of the increase in external debt was due to exchange-rate valuation effects, not fresh borrowing.
Conclusion
The Ministry of Finance concluded that the government’s approach of focusing on debt-to-GDP reduction, early repayments, lower interest costs, and external account strengthening has enhanced Pakistan’s sovereign debt resilience and long-term fiscal stability.
