Pakistan records PKR1.37 trillion drop in public debt, first drop in six years
Drop driven by early repayments, lower borrowing needs, stronger financial management
Dubai: Pakistan recorded its first quarterly decline in public debt in nearly six years, a shift officials describe as a sign of improving fiscal control and rising policy credibility.
New data for the quarter ending September 2025 shows a reduction of more than PKR1.37 trillion in total public debt, supported by early repayments, lower borrowing needs, and stronger financial management by the federal government and the State Bank of Pakistan (SBP).
Public debt fell to PKR79.15 trillion in September 2025 from PKR80.52 trillion in June 2025. Khurram Shahzad, Adviser to the Minister for Finance, called it Pakistan’s “first quarterly decline since December 2019 and the largest ever in both absolute and percentage terms.”
In a post on X, he said the improvement reflects “disciplined fiscal management” and the use of surplus funds to retire high-cost debt ahead of schedule, a move he described as central to lowering future borrowing and reducing rollover exposure.
Long-term trends
Recent SBP figures provide a deeper look at the shift:
Total public debt dropped by PKR1.283 trillion during July–September FY26.
Domestic debt accounted for most of the fall, shrinking by PKR1.048 trillion to PKR53.424 trillion.
Long-term domestic debt declined by PKR692 billion, while short-term instruments fell by PKR356 billion.
External debt edged down by PKR236 billion to PKR23.181 trillion.
Analysts say the early-quarter decline signals stronger coordination between fiscal and monetary authorities. They point to the SBP’s PKR2.5 trillion profit in the previous fiscal year, of which PKR2.4 trillion was transferred to the federal government, easing the interest bill. They add that contained budgetary borrowing supports private-sector credit, which can help lift economic activity through FY26.
Government officials frame the quarterly decline within a broader strategy laid out in a September 2025 debt-management update. The Ministry of Finance said sustainability should be assessed through debt-to-GDP rather than absolute rupee totals, noting that headline figures naturally rise with inflation. The ministry reported an improvement in Pakistan’s debt-to-GDP ratio from 74% in FY22 to 70% in FY25.
Progress metrics
The report outlines several markers of progress:
The government prepaid PKR2.60 trillion across commercial and central-bank obligations, the first such move in Pakistan’s history. Officials say this reduced refinancing and rollover risks while saving hundreds of billions in interest payments.
The federal fiscal deficit narrowed to PKR7.1 trillion in FY25, lower than PKR7.7 trillion in FY24. As a share of GDP, the deficit fell from 7.3% to 6.2%.
Pakistan posted a primary surplus of 2.4% of GDP— PKR2.7 trillion—for the second straight year.
Interest-expense savings exceeded PKR850 billion in FY25, supported by lower rates and prudent liability management.
Public debt’s average time to maturity rose from about 4.0 years to 4.5 years; domestic debt’s maturity lengthened from 2.7 to 3.8 years.
The ministry also highlighted gains on the external front. Pakistan recorded a $2.0 billion current-account surplus in FY25, its first in 14 years. Officials said part of the external-debt movement reflects Balance of Payments support, including IMF Extended Fund Facility inflows and non-cash arrangements such as the Saudi Oil Fund. They noted that about PKR800 billion of the external-debt increase came from exchange-rate valuation rather than new net borrowing.
Shahzad said the debt decline reinforces “policy credibility and investor confidence.” He added that sustained reductions in debt servicing can free fiscal space for development and social protection, describing the latest quarter as “a meaningful step toward a more sustainable fiscal path.”
Sign up for the Daily Briefing
Get the latest news and updates straight to your inbox
