KARACHI: Pakistan’s total government debt rose to Rs78.5 trillion by the end of December 2025, marking an increase of Rs641 billion, or 0.82%, in the first half of the current fiscal year, according to data released by the State Bank of Pakistan (SBP).
Domestic Debt Drives the Increase
The rise was primarily fueled by domestic borrowing. Central bank figures show domestic debt surged to Rs55.4 trillion, an increase of Rs891 billion or 1.63% since June 2025. In contrast, external debt decreased by 1% to Rs23.1 trillion over the same period.
Analysts point to a reliance on local banking liquidity. “The increase remains primarily domestic-debt driven, particularly through PIBs, sukuk and Treasury bills, indicating the government’s ongoing reliance on local banking liquidity amid relatively tight external financing conditions,” said Saad Hanif, head of research at Ismail Iqbal Securities.
Debt Stock Remains Elevated Despite Surplus
This accumulation occurred despite the government recording a budget surplus of Rs542 billion (0.4% of GDP) for July-December FY26, a significant reversal from a Rs1.5 trillion deficit in the same period last year.
The data reveals a persistent fiscal challenge. The total debt stock was up 1.3% month-on-month and 9.6% year-on-year. Gross public debt reached Rs81.3 trillion, while total debt and liabilities ballooned to Rs95.5 trillion.
Servicing Costs and Long-Term Challenges
While debt servicing costs saw a temporary reprieve—falling to Rs5.2 trillion in 1HFY26 from Rs6.9 trillion a year earlier—the overall burden remains unsustainable.
Gross public debt surged to 70.7% of GDP in FY25, exceeding the legal limit set by the Fiscal Responsibility and Debt Limitation Act. Analysts warn this high debt level consumes half the annual budget, constraining development spending and placing a heavy tax burden on citizens.
External Debt Pressures Persist
In dollar terms, Pakistan’s total external debt and liabilities increased to $138 billion. External debt servicing payments totaled $4.1 billion in the second quarter of FY26, up from $3.5 billion in the previous quarter.
“External debt growth stayed comparatively contained, suggesting stable FX borrowing but persistent pressure on domestic interest costs,” Hanif added. “The elevated debt stock continues to highlight fiscal consolidation challenges.”
The government has highlighted efforts to improve its fiscal position, including retiring Rs3.65 trillion in domestic debt ahead of schedule since late 2024. However, the latest data underscores the ongoing struggle to achieve sustainable debt management amid pressing economic needs.
