Pakistan’s latest debt review offers a sobering reminder of the structural weaknesses that continue to hobble the economy. The Ministry of Finance has reported that the country’s total public debt surged by 13% to Rs80.6 trillion in FY25, with the debt-to-GDP ratio climbing to 70% from 68% in the previous year. This rise, despite an ostensible attempt at fiscal consolidation, truly reflects how fragile economic recovery remains when growth lags and deficits persist.
The key driver of this debt spiral is the fiscal deficit, which stood at Rs7.1 trillion, largely financed through domestic borrowing. While the share of external debts in the overall stock declined to 32%, reducing some currency risk, this came at the cost of piling pressure on domestic markets through heavy issuances of Pakistan Investment Bonds and Government Ijarah Sukuk.
Reliance on short-term instruments has diminished, which may ease rollover risks. There are, nonetheless, modest improvements worth noting. Interest expenditure, though still rising, grew at a slower pace as compared to last year’s. External dynamics add further complications. Despite inflows from the IMF and multilateral lenders as well as an ADB-guaranteed loan, Pakistan’s external debt edged up to $91.8 billion, with repayment obligations still pressing. Bilateral deposits from “friendly” nations remain rolled over, keeping the economy in a state of dependence.
Pakistan’s debt problem is not merely a matter of numbers but of governance and economic structure. Chronic fiscal indiscipline, low tax revenues and sluggish growth ensure that each year begins with higher debt and fewer options. Without broadening the tax base and rationalising expenditure, no amount of debt restructuring or financial engineering will suffice. The debt review should, therefore, be read as a warning as the space to delay genuine reform is fast shrinking, and the cost of inaction will only grow heavier with time.
