KARACHI: Pakistan’s total government debt has increased by Rs9 trillion in just one year up to June 2025, with domestic debt representing the majority of this increase. This significant rise in borrowing is raising concerns about the country’s fiscal balance and its capacity to manage revenue and expenditures effectively.
According to the latest data from the State Bank of Pakistan (SBP), the total government debt increased from Rs68.914tr in June 2024 to Rs77.888tr by June 2025, marking a rise of Rs8.974tr. This figure exceeds the debt servicing allocation for the federal budget for fiscal year 2026 (FY26), which stands at Rs8.207tr.
The federal budget for FY26 has a total outlay of Rs17.573 trillion, which is a 6.9 per cent decrease from the previous year. Additionally, the allocation for current expenditures has been reduced by 5.33pc to Rs16.286tr. Despite these cuts, the government’s interest payments continue to consume nearly half of the total budget, cementing debt servicing as the largest single expense.
The federal debt increased by 13pc in the past year, compelling the government to allocate more funds for debt servicing and curtail development spending. The devastating floods in 2025 have exacerbated the situation, damaging crops, displacing around 2.5 million people, and leaving a significant need for rehabilitation. Experts warn that the increase in borrowing, combined with rising spending demands, could further widen the fiscal deficit.
Domestic debt has risen sharply by Rs7.311tr, from Rs47.16tr in June 2024 to Rs54.471tr by June 2025, reflecting a 15.5pc increase. This growing burden is straining government finances, and independent economists have urged the government to reduce spending to prevent long-term economic damage.
External debt has also increased by Rs1.663tr to Rs23.417tr by June 2025. A weaker rupee could further escalate this debt, posing additional risks to Pakistan’s external account. The external debt servicing, which had been temporarily addressed in FY25, remains a pressing issue. Pakistan faces a $26 billion servicing requirement in FY26, making it a significant challenge to manage the country’s foreign obligations.
Published in Brackly News, September 10th, 2025
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