Debt Reaches Historic Peak
Pakistan’s federal government debt has surged to an unprecedented level, reaching PKR 77.888 trillion by the close of fiscal year 2025. The latest figures were released by the State Bank of Pakistan (SBP) in its annual debt report.
This marks the highest debt burden in the country’s history, reflecting both domestic and external financial pressures. Economists warn that such growth in liabilities underscores Pakistan’s continuing struggle with structural economic weaknesses.
Year-on-Year Increase
According to SBP data, federal debt stood at PKR 68.914 trillion in June 2024. Over the course of fiscal year 2025, it rose by 13 percent. Analysts attribute this sharp increase to a combination of currency depreciation, rising interest rates, and heavy borrowing to cover budget deficits.
In comparison, during fiscal year 2023–24, the growth in debt had been slightly lower. However, the latest figures suggest the trend is accelerating, with the federal government increasingly reliant on both domestic and external borrowing.
Domestic and External Borrowing Breakdown
The central bank’s report highlights significant changes in the composition of debt. Domestic debt increased by 15.5 percent, reaching PKR 54.471 trillion by June 2025. This sharp rise reflects heavy borrowing from local banks and the issuance of government securities to meet fiscal needs.
External debt, meanwhile, grew by 7.6 percent to PKR 23.417 trillion. Although this increase was slower than domestic debt, it remains a source of concern, given Pakistan’s limited foreign exchange reserves. Servicing external debt requires stable inflows of foreign currency, which the country struggles to secure due to a widening trade gap and declining foreign direct investment.
Mounting Pressure on Economy
Economists warn that the continued rise in debt signals serious challenges for Pakistan’s financial stability. The country’s foreign exchange reserves remain under pressure, hovering between USD 8 and 10 billion during much of 2025 — barely enough to cover two months of imports.
At the same time, revenue collection has not kept pace with rising expenditures. The Federal Board of Revenue (FBR) has repeatedly missed tax collection targets, leaving the government with fewer resources to finance development projects or reduce borrowing.
Structural Weaknesses Highlighted
Experts argue that Pakistan’s dependence on loans is symptomatic of deeper structural issues. Chronic fiscal deficits, low productivity, and reliance on imports continue to weigh on the economy. Inflation, which has averaged over 20 percent during parts of 2025, has further eroded purchasing power and raised the cost of servicing debt.
International lenders, including the International Monetary Fund (IMF), have emphasized fiscal reforms, including widening the tax base, improving governance, and reducing losses in state-owned enterprises. Without such reforms, economists fear Pakistan will remain trapped in a cycle of borrowing and repayment.
Growing Concern for the Future
The rising debt also places significant pressure on future governments, as debt servicing already consumes a major portion of annual budgets. In fiscal year 2025, debt servicing costs accounted for more than 60 percent of federal revenue, leaving limited fiscal space for health, education, or infrastructure.
Observers caution that unless Pakistan increases its exports, attracts investment, and boosts domestic revenue, reliance on loans will deepen further. With elections approaching in 2026, political uncertainty may also affect the government’s ability to implement tough reforms.
Outlook
While the latest figures from the State Bank underscore the severity of the debt challenge, experts note that Pakistan still has opportunities to stabilize its finances. Key measures include broadening the tax base, curbing non-development expenditures, and ensuring more efficient use of foreign loans.
For now, however, the trajectory of rising debt remains a warning sign for Pakistan’s economy, highlighting the urgent need for structural change.
