ISLAMABAD - Pakistan’s public debt surged by Rs7.45 trillion during the fiscal year 2024-25, rising from Rs71.246 trillion in the previous year to Rs78.701 trillion—equivalent to 68.6 percent of the GDP. This marks an increase of 10.46 percent in public debt, which remained at 68.6 percent of the GDP— well above the legally mandated ceiling of 60 percent set by the Fiscal Responsibility and Debt Limitation (FRDL) Act. These figures were revealed in the Medium-Term Debt Management Strategy (2026–28), released by the Finance Division.
The FRDL Act stipulates that the public debt-to-GDP ratio should be maintained around the 60 percent threshold.
The Medium-Term Debt Management Strategy (MTDS) covers a three-year period from FY 2026 to FY 2028. It will be reviewed and updated annually to reflect any major shifts in prevailing macroeconomic and market conditions.
During FY 2024-25, Pakistan’s public debt increased by Rs7.45 trillion, rising from Rs71.246 trillion in June 2024 to Rs78.701 trillion. The domestic debt proved significantly more expensive than external debt, with a weighted average interest rate of 15.82 percent, the strategy noted.
As of the end of FY 2025, total public debt is estimated at Rs78.701 trillion ($277.6 billion), equivalent to approximately 68.6 percent of the estimated GDP. According to the data, domestic debt reached Rs53.5 trillion, while external debt stood at Rs25.201 trillion.
In recent years, there has been a growing reliance on domestic sources for financing. As a result, the share of domestic debt in total public debt increased from around 62 percent in FY 2023 to approximately 68 percent in FY 2025.
External debt primarily consists of medium- to long-term loans from multilateral and bilateral sources, while short-term commercial borrowings and deposits from friendly countries have remained key sources of funding. On the domestic front, Pakistan Investment Bonds (PIBs) and Treasury Bills (T-bills) continue to be the main instruments of financing. The share of Shariah-compliant government securities has increased to over 12 percent, while the proportion of unfunded debt has declined to 6 percent.
The cost of debt in FY 2025 remains high, particularly for domestic borrowing. The overall weighted average interest rate stands at 11.9 percent, largely driven by the significantly higher cost of domestic debt compared to external sources. External debt carries a much lower weighted average interest rate of 4.4 percent, reflecting the dominance of concessional and semi-concessional financing. In contrast, domestic debt bears a substantially higher average rate of 15.82 percent, highlighting the elevated cost of domestic financing.
As a result, interest payments have consumed nearly 6 percent of GDP in FY 2025. Refinancing risk has declined as the Average Time to Maturity (ATM) of domestic debt increased from 2.7 years in June 2024 to 3.8 years in June 2025. The ATM for external debt remains above 6.1 years, resulting in an overall ATM of approximately 4.5 years.
Regarding the performance of the FY2023–26 Medium-Term Debt Management Strategy (MTDS), it was noted that the targets set for this period have largely been achieved, with significant progress in several areas. Refinancing risk has improved during the implementation of the previous strategy, with the ATM of domestic debt exceeding its target by FY2025. This was due to the successful, albeit gradual, extension of domestic debt maturities. However, limited progress in extending the ATM of external debt reflects reduced net financing from multilateral and bilateral sources, alongside increased reliance on short-term deposits from friendly countries.
Interest rate risk remains broadly in line with the strategic targets set in the previous MTDS, though it has not declined as much as anticipated. The primary reason is the record-high inflation and the subsequent increase in the policy rate to 22 percent in FY2023, which prompted investors to favour short-term, floating-rate instruments.
However, this risk was partially mitigated in FY2025, as the government capitalised on a declining interest rate environment by issuing more long-term Sukuk and fixed-rate debt instruments. Currency risk has been managed effectively with the share of foreign currency debt in total public debt reaching 32 percent, well below the 40 percent ceiling. Market development has been in line with expectations, with Shariah-compliant debt instruments accounting for around 12.7 percent of outstanding Government securities in FY2025.
The macroeconomic assumptions underlying the DMS are aligned with the FY2026- FY2028 Medium-Term Fiscal Framework (MTFF). Nominal GDP is projected to increase from Rs114.7 trillion in FY2025 to Rs162.5 trillion by FY2028, reflecting an expected broad-based economic recovery. Commodity producing sectors are expected to expand, driven by agriculture and manufacturing.
Fiscal consolidation is expected to result in an average primary surplus of around 1 percent of GDP during the strategy period, in line with IMF programme targets. Domestic debt is expected to remain the primary source of government financing during the strategy period, it further explained.
For floating-rate instruments, the 10-year tenor will remain the sole option available. While efforts will be made to reduce reliance on net issuance of T-bills, their overall share in domestic government debt securities will be maintained without further increase. To further support the development and diversification of the domestic capital market, a key objective will be to increase the share of Shariah-compliant instruments within the government securities portfolio.
External financing will continue to focus primarily on multilateral and bilateral sources, offering concessional terms and longer maturities. To diversify its external financing portfolio, the government plans to re-enter international capital markets through instruments such as Panda Bonds, Sustainable Bonds, and Eurobonds. These efforts aim to broaden market access and mobilise financing on more flexible terms, subject to favourable global interest rate conditions and overall macroeconomic stability.
Pakistan has established a $1 billion Panda Bond programme, with an inaugural issuance of $200–250 million in FY2026 and additional tranches are planned, under this programme, in the medium-term. Preparatory work is also underway for the issuance of Sustainable Bonds in international capital markets. To support these initiatives, a Sustainable Financing Framework has been finalised and is currently under Cabinet review.