Federal government debt reaches Rs82 trillion

ISLAMABAD: The federal government’s debt climbed to Rs82 trillion by the end of May, rising by Rs5.9 trillion over the June-May 2025-26 period, according to the State Bank of Pakistan’s latest debt bulletin. The increase of 7.8% was higher than the average inflation rate of 7%, indicating that debt continued to grow faster than price increases during the year.

The latest figures came alongside concerns raised by the Auditor General of Pakistan (AGP), which sought stronger internal checks in the finance ministry to ensure more accurate assessment of borrowing requirements for debt repayment. The issue has surfaced at a time when the country’s Debt Management Office has been functioning without a permanent head for six months and has been run on an ad-hoc basis since January.

According to the central bank data, the total debt figure excludes liabilities and debt related to the International Monetary Fund (IMF). Based on the reported increase, the debt stock expanded at an average pace of about Rs16 billion per day during the period under review.

Audit flags budgeting and reporting issues

The AGP, in its audit report for fiscal year 2024-25 released last week, objected to what it described as irrational budgeting of Rs1.83 trillion for principal loan repayment. During the audit of appropriation accounts for FY2024-25, the federal government had allocated Rs24 trillion for principal repayment, later added Rs2.64 trillion through supplementary grants, and then surrendered Rs2.8 trillion. Even after that, actual spending stood at Rs25.8 trillion, exceeding the amount set aside by the finance ministry.

"The audit observed that the irrational budgeting resulted in unnecessary excess expenditure of Rs1.83 trillion," the audit report stated, adding that "controls and checks within the Ministry of Finance require strengthening to ensure accurate assessment of the actual requirements under repayment of debt"

The AGP further reported that the federal government was not preparing Debt and Losses reports as required under the Financial Reporting Manual. According to the audit objection, these reports are meant to provide an analysis of the national debt position at the end of each month.

Debt office still without permanent leadership

The debt figures and audit observations have emerged while the post of Director General Debt Office remains vacant. In May, the Senate Standing Committee on Finance also took up the matter. During its meeting on May 19, debt office adviser Omar Khan told the committee that the government was in the process of shortlisting candidates, but he did not give a firm timeline for the appointment.

The office remains understaffed as well. Of the three sanctioned director positions, only one is held on a permanent basis. The finance ministry has assigned the additional charge of the other two director posts to a consultant on domestic debt and to a risk assessment expert.

The Prime Minister’s Office also sought information on the vacant DG position after the matter was highlighted publicly. Despite repeated commitments to the IMF and the World Bank, the Debt Management Office continues to operate below capacity.

Domestic debt drives overall increase

The SBP bulletin showed that domestic debt remained the main contributor to the overall rise. Federal government domestic debt reached Rs58.1 trillion after increasing by Rs4.7 trillion over one year. Long-term domestic debt rose from Rs45.2 trillion to Rs47.3 trillion, adding around Rs2 trillion during the period.

Short-term domestic debt also increased sharply, rising by Rs2.6 trillion from Rs8.1 trillion to Rs10.7 trillion. This represented a 32% jump, even as interest rates were on a declining trend.

External federal government debt increased more slowly, moving from Rs22.5 trillion to Rs23.8 trillion, an increase of Rs1.3 trillion. The relatively stable exchange rate helped contain the rise. During the last fiscal year, the rupee appreciated to Rs278.4 against the US dollar, contributing to a slower pace of increase in external debt compared with earlier trends.

However, the government’s short-term external debt rose sharply from Rs201 billion a year earlier to Rs2.7 trillion by May. The central bank attributed this jump to the reclassification of long-term debt as short-term debt, without providing further details.

The growing debt load has also pushed this fiscal year’s interest servicing cost to more than Rs8 trillion.