Pakistan's debt burden eases as interest costs fall 23%

June 11, 2026 (MLN): Pakistan's public debt management is showing tangible results as the first nine months of FY2026 recorded the slowest debt accumulation in recent years, with total markup expenditure declining sharply on the back of lower policy rates and a structural shift toward longer-tenor fixed-rate borrowing.

Debt stock moderates

Total public debt stood at Rs83,285 billion at end-March 2026, comprising domestic debt of Rs57.56 trillion and external public debt of Rs25.720tr.

Growth in the outstanding stock during July–March FY2026 clocked in at 3.4%, less than half the 6.7% recorded in the same period of the preceding year.

The primary federal surplus widened to Rs2.45tr from Rs2.41tr a year earlier, keeping the underlying fiscal position in check. Interest on debt at Rs4.95tr remained the dominant driver of residual debt accumulation, though it too fell sharply from Rs6.44tr in the same period of FY2025.

Interest burden falls 23%

Total markup expenditure of Rs4.95tr in July–March FY2026 represented 60% of the full-year budget estimate of Rs8.21tr, and was 23% lower year-on-year.

The decline shows cumulative policy rate cuts, reduced reliance on expensive short-term borrowing, and a structural shift toward longer-tenor fixed-rate instruments.

Domestic debt servicing consumed Rs4.20tr, equivalent to 59.5% of the Rs7.20tr annual allocation, while external debt interest payments reached Rs660bn, or 65% of the budgeted Rs1.01tr.

Domestic debt composition

Domestic debt rose by Rs3.1tr to Rs57.57tr. Permanent debt comprising PIBs, GIS and Prize Bonds climbed from Rs41.8 trillion to Rs43.9tr, accounting for approximately 77% of total domestic debt.

Floating debt edged from Rs8.8tr to Rs9.6tr, holding its share near 16.6%, broadly in line with the government's strategy of near-zero net T-bill issuance. Unfunded debt rose from Rs3.4tr to Rs3.6tr.

The government launched 15-year zero-coupon PIBs, raising Rs263bn on a realized-value basis, and introduced a 10-year zero-coupon fixed-rate Sukuk to deepen Shariah-compliant offerings.

Total Sukuk issuances reached approximately Rs2.25tr during the period, lifting the share of Shariah-compliant instruments from 12.7% in June 2025 to 14.5% by March 2026.

Domestic market participation remained strong. PIBs attracted Rs22.51tr in bids against a Rs5.12tr target at a 4.2x cover ratio, with 66.5% of issuance in fixed-rate instruments.

GIS drew Rs6.63tr in participation against a Rs2.15tr target at a 2.9x cover ratio, with 87% in fixed-rate category.

Debt risk indicators improve

Progress was visible across all four risk dimensions of the Medium-Term Debt Management Strategy for FY2026–28. The share of external debt in total public debt eased to 31% from 32%, containing currency risk.

The Average Time to Maturity of domestic debt extended to 3.86 years from 3.80 years while external debt ATM held steady at 6.1 years.

Most significantly, the share of fixed-rate debt in government securities rose from 20% to 27.6%, substantially reducing interest rate exposure.

External debt stable

External public debt reached $92.2bn at end-March 2026, an increase of just $364m during the nine months less than half the $883m rise in the same period of FY2025.

Multilateral loans remain the largest component at $42.48bn or 46% of total external debt. Bilateral non-Paris Club exposure stands at $19.025bn or 21%, while Eurobonds and international Sukuk account for $6.30bn or roughly 7%.

Total external disbursements reached $6.10bn, including a $1.2bn IMF-EFF tranche. Repayments of $6.25bn resulted in a marginal net outflow of $149m.

External interest payments amounted to $2.58bn. Liability Management Operations continued with buybacks of approximately Rs2.1tr in government securities to rationalize servicing costs.

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