Taking stock of debt stock

EDITORIAL: Annual Debt Review Fiscal Year 2025 prepared by the Debt Management Office reveals that public debt stock increased from 71.2 trillion rupees in June 2024 (91 percent financed from domestic sources and 9 percent from external sources) to 80.6 trillion rupees in June 2025 — a 13 percent increase — while per capita debt rose from 294,098 rupees to 333,041 rupees. Loan incurred from the International Monetary Fund, foreign exchange liabilities including the over USD 12 billion annual rollovers by three friendly countries are not included in the government’s debt figures.

Debt to Gross Domestic Product (GDP) rose from 68 percent in June 2024 to 70 percent in June 2025 violative of the 60 percent envisaged in the Fiscal Responsibility and Debt Limitation Act. The reason as cited in the document: “Mostly due to lower than expected growth in the nominal GDP in fiscal year 2025, as significantly lower inflation reduced the pace of economic expansion, thereby pushing up the debt-to-GDP ratio despite fiscal consolidation efforts” — from 28.79 percent in 2023-24 to 7.22 percent in 2024-25 as per the Pakistan Bureau of Statistics.

Public debt consists of both domestic (short and long term, on-lending to the government, unfunded debt mainly savings schemes, floating debt and Naya Pakistan Certificates) and external debt there are slight discrepancies with the data uploaded on the State Bank of Pakistan’s website: 68,913.9 billion rupees by June 2024 rising to 77,888.4 billion rupees by June 2025; however, what is reassuring is that it has been estimated to have declined to 769,759.5 billion rupees by October 2025. The report further maintains that the primary factor for an increase in debt stock is the size of the fiscal deficit determined by the primary balance and interest payments and it is the latter that was the main driver of debt stock in previous years.

Be that as it may, the discount rate was reduced from 20.5 percent in June 2024 (from 22 percent in April that year) to 11 percent in June 2025 by the Monetary Policy Committee. It is pertinent to note that in the current year the government budgeted lower interest payments on the assumption that the discount rate would be further reduced by December 2025 – a projection made by the Minister of Finance Muhammad Aurangzeb to a parliamentary panel. However, the discount rate has witnessed a mere 0.5 percent decline in the first half of the current fiscal year, to 10.5 percent, and unless it is significantly reduced further it may well compromise the capacity of the government to meet its budgeted deficit target.

Ideally, one would have supported the government’s efforts to reduce the debt stock but not through a decline in the interest payments (though that too must be appreciated) but through a reduction in other components of current expenditure (other than interest), which remains the major reason behind the government’s inability to reduce borrowing - both domestically and externally. And more disturbingly, it is also one of the main reasons for the government’s inability to release funds for the budgeted Public Sector Development Programme (PSDP) that is contributing to the widening inadequacy of the existing physical and social infrastructure to meet the needs of a growing population. The way forward, therefore, must be to proactively reduce current expenditure rather than following a severely contractionary fiscal policy that is impeding growth and aim for a budget deficit target.

Copyright Business Recorder, 2026