Pakistan strengthens debt profile with lower risks, higher savings

September 16, 2025 (MLN): Pakistan’s debt management approach remains centered on aligning the public debt-to-GDP ratio with the Fiscal Responsibility and Debt Limitation Act, reducing refinancing and rollover risks and generating interest savings to support sustainable public finances.

In its latest statement, the Ministry of Finance addressed recent commentary on debt levels, stressing that absolute rupee figures, which naturally increase with inflation, are not reliable indicators of sustainability on their own.

The appropriate global measure is debt relative to GDP, and by this standard Pakistan’s position has improved.

The Debt-to-GDP ratio declined from 74% in FY22 to 70% in FY25, while rollover risks were curtailed and taxpayers saved significant interest costs.

For the first time in the country’s debt history, early repayments of Rs 2,600 billion were made before maturity across commercial and central bank obligations.

This step reduced refinancing risks and generated substantial interest savings. Fiscal indicators also showed improvement, with the federal deficit narrowing to Rs 7.1 trillion in FY25 from Rs 7.7tr in FY24.

As a share of GDP, the deficit dropped to 6.2% from 7.3%, while Pakistan recorded a historic primary surplus of 2.4% of GDP, or Rs2.7tr, for the second consecutive year. Total debt stock rose 13% year-on-year, lower than the five-year average of 17%.

Lower interest rates and careful liability management produced savings of over Rs850bn during FY25. For the current fiscal year, interest allocations stand at Rs8.2tr, compared to Rs9.8tr in FY25.

Debt maturity has also strengthened, with average public debt maturity improving to 4.5 years in FY25 from 4.0 years in FY24, while domestic debt maturity rose to 3.8 years from 2.7 years.

Improved fiscal management had a spillover effect on the external account, which recorded a USD 2.0bn surplus in FY25 the first in 14 years thereby reducing financing needs.

A portion of the rise in external debt was linked to IMF inflows and non-cash commodity facilities such as the Saudi Oil Fund, while around Rs800bn showed valuation changes from exchange rate movements rather than fresh borrowing.

The Ministry stressed that Pakistan’s debt outlook is more sustainable than suggested by headline rupee figures, highlighting a continued focus on Debt-to-GDP reduction, early repayments, lower interest costs and a stronger external position to ensure macroeconomic stability.

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