Public debt

That the government is doing something right is shown by the fact that its debt stock, both domestic and foreign, has fallen appreciably in the first quarter of the current financial year, has gone down. to Rs 76.605 trillion at the end of September 2025, from Rs 77.888 trillion at the close of June 2025, a drop of Rs 1.283 trillion. It will lessen the debt servicing need of the federal government by about a billion rupees, the exact figure depending on the interest rate on the debt which has been relinquished. The profit of Rs 2.5 trillion earned by the State Bank of Pakistan, of which Rs 2.4 trillion has been transferred to the government, has also helped.

The danger is that the government might regard the reduction in the debt as license to incur more debt. The Fiscal Responsibility and Debt Limitation Act had let an upper cap of 64.4 percent of GDP on debt, but has long been exceeded, and the debt of end-June 2025 was 70.8 percent of the GDP. The debt limitation law suffers from the defect of having no teeth, and seems to be based on the USA, even though it has a different form of government. The recent shutdown which lasted a record 33 days, did not affect the President, but failure to pass a budget would mean the fall of the government.  A mechanism consistent with the parliamentary form of government must be found, however, which will convert the cap from an indicative aspiration to a mandatory goal. It would be better for Parliament to come up with this mechanism rather than have it imposed from outside. It should not be forgotten that this cap was placed by the Musharraf Martial Law, so if the government of the day does not act to restrain itself, it will have no one to blame if lending agencies like the IMF or World Bank start making noises in due course.

The government should not mistake ability to borrow as meaning a licence to do so. Government debt has been contracted because at the beginning of the fiscal year it is broke, but has hopes of raising revenues. Lenders know they will be repaid, and thus the vicious cycle starts. The government must ensure that it maintains financial discipline, if it ever hopes to repay its debt serving costs out of revenue than from fresh borrowing, as at present.