Public debt plays a crucial role in a country’s fiscal and economic framework, serving as a key instrument for financing the budget deficits, supporting the development spendings, and managing macroeconomic shocks as well. Typically, it was sourced from domestic and external creditors, each carrying distinct opportunities and risks.
While borrowing from the public enables the governments to incur smooth expenditure and invest in the infrastructure and social services, excessive or poorly managed debt also poses serious vulnerabilities, such as rising interest burdens, crowding out of private investment, and exposure to exchange rate or interest rate shocks. These risks, according to the experts, can undermine long-term fiscal sustainability and economic security in case this was left unaddressed. Quite appreciatively cognizant of these challenges, the government as such remains committed to ensure optimal public debt management through prudent borrowing, active debt portfolio management, and also having a clear focus on ensuring medium to long-term debt sustainability.
The primary objective of public debt management was to ensure that the government’s gross financing needs were duly met at the lowest possible cost over the medium to long run with a prudent degree of risks involved.
The experts have also opined that the conduct of public debt management varied across sovereigns due to different institutional fundamentals, legal frameworks, and also the governance structures. The goal as such was to ensure that both the level as well as the rate of growth were sustainable and the debt portfolio was also efficiently structured in terms of currency composition. maturity profile, and interest rates, along with also having a prudent level of contingent liabilities.
As per the facts and figures available from the official documents, downloaded from the federal ministries concerned following the approval of another budget by the coalition headed by Prime Minister Shehbaz Sharif,, during the first nine months of the outgone fiscal year, July-March FY 2025, the public debt portfolio and borrowing operations witnessed various developments.
The fiscal deficit was financed entirely through domestic borrowing sources, in contrast to the corresponding period of 2023-24, where approximately 88 percent of the financing was sourced domestically and the remaining 12 percent secured from the external sources.
The share of external debt in the country’s total debt declined to 32 percent as of March 2025, down from 34 percent recorded in June 2024. The external debt, as per the information available, had remained within the maximum limit of 40 percent set by the Medium-Term Debt Management Strategy.
Within the domestic debt portfolio, the federal government had primarily relied on long-term instruments such as Pakistan investment Bonds (PIBs) and Sukuk (Islamic Bonds) to finance the fiscal deficit and meet the debt repayment obligations. This strategic shift enabled the federal government to retire Treasury Bills (T-bills) amounting to Rs 2.4 trillion, thereby being able to reduce the volume of short-term securities and improving the debt maturity profits.
In order to cater to the investors demands, the federal government also introduced a two-year zero-coupon Pakistan Investment Bond (PIB) during the period under report and quite successfully raised Rs 610 billion through this instrument.
In addition to the existing three-year and five-year Ijara Sukuk, the federal government had also introduced a ten-year Sukuk, at both variable and fixed rates, with a target to diversify the Shariah-compliant instrument base. During the first nine months of FY2025, the government had successfully raised approximately Rs 1.6 trillion via Shariah-compliant Sukuk issuances.
External budgetary disbursements were recorded at $5.1 billion, of which $2.8 billion were received from multilateral sources, $0.3 billion from bilateral development partners, $1.5 billion was from Naya Pakistan Certificates and $0.56 billion from the commercial banks.
The federal government also had received $1.03 billion under the International Monetary Fund (IMF)’s Extended Fund Facility (EFF).
The federal government had successfully executed the first-ever Payback and exchange Programme as part of its strategic Liability Management Operations (LMOs). Through this initiative, the federal government had successfully repurchased approximately Rs 1 trillion worth of the government debt securities thereby reducing the debt servicing cost.
The Fiscal Responsibility and Debt Limitation Act 2005 defines ” Total Public Debt” as the debt owed by the Federal Government as well as the Provincial Governments of Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan serviced out of the respective consolidated fund and the debts owed to the International Monetary Fund.
On the whole, Pakistan’s stock of gross public debt stood at Rs 76007 billion at the end of March 2025. The debt-to-Gross Domestic Product (GDP) ratio during this period was reported to have decreased from 67.8 percent to 66.3 percent. The federal government primarily continued to rely on domestic financing sources. Thus, the domestic debt stood at Rs 51517.9 billion, posting an increase of Rs 4.36 billion from June 2024 and constituting 68 percent of the total debt. External debt stood at Rs 24489.1 billion, reflecting an increase of Rs 403 billion from June 2024.
However, the share of external debt in the country’s total debt declined to 32 percent as of March 2025, down from 34 percent recorded in June 2024. The external debt, as per the information available, had remained within the maximum limit of 40 percent set by the Medium-Term Debt Management Strategy.
It was also worth mentioning here that the Federal Finance Ministry has also formulated the Medium Debt Management Strategy for the period FY 2023 to FY 2026 keeping in view the medium term national macro fiscal framework.
