The Ministry of Finance has released a comprehensive debt analysis under the IMF framework, projecting a notable decline in the country’s debt-to-GDP ratio over the next three years.
The report, however, warns that economic slowdown, rupee depreciation, and rising interest rates remain significant threats to debt sustainability.
As of June 2025, Pakistan’s total debt has surpassed Rs. 84 trillion, with an increase of over Rs. 10 trillion in just the past year. The debt-to-GDP ratio is expected to drop from 70.8 percent to 60.8 percent by 2028, with the report expressing confidence in the medium-term sustainability of the country’s debt.
Despite a saving of Rs. 888 billion in interest payments last year, the report notes that Pakistan’s financing needs will remain high, at 18.1 percent, through 2028. The Ministry of Finance has highlighted several risks, including the potential impact of contingent liabilities, currency depreciation, interest rate fluctuations, external shocks, and climate change.
A large portion of Pakistan’s debt, 67.7 percent, is domestic, with 80 percent of that on floating rates, exposing the country to ongoing interest rate risk. External debt accounts for 32.3 percent of the total, and refinancing risk remains a concern.
Gross financing needs, while projected to decline from 26.1% of GDP in FY2025 to 15.6% by FY2028, will remain above the 15% benchmark, underscoring continued refinancing and liquidity risks. The report notes that 80% of domestic debt is on floating rates, making the government highly sensitive to interest rate changes, while 32.3% of total public debt is external, exposing the country to currency and rollover risks.
The government’s strategy focuses on diversifying borrowing sources, extending maturities, and improving transparency. Efforts to boost exports, attract foreign investment, and expand the IT sector are expected to support exchange rate stability and reduce reliance on external financing.
Fiscal reforms, including broadening the tax base, digitalizing tax administration, and performance-based budgeting, are central to the government’s plan to maintain a primary surplus and anchor debt sustainability. The federal primary balance posted a surplus of 1.6% of GDP in FY2025 and is expected to remain positive through FY2028.
While the DSA concludes that Pakistan’s debt is sustainable under the baseline, it warns that “vulnerabilities are most evident under shocks to the federal primary balance, slower economic growth, exchange rate depreciation, higher interest rates, and the realization of contingent liabilities.” The report calls for continued fiscal discipline, structural reforms, and prudent debt management to safeguard macroeconomic stability.
The Ministry also reported that economic growth rose from 2.6 percent to 3.0 percent last year, with projections of reaching 5.7 percent over the next three years. Inflation has dropped sharply from 23.4 percent to 4.5 percent, and is expected to average 6.5 percent by 2028.
The report underscores the need for continued reforms and prudent economic management to ensure debt sustainability and long-term growth.
