The percentage of public debt to Gross Domestic Product (GDP) including debt from the International Monetary Fund, and external and domestic debt has fallen down from 87.6pc in Fiscal Year (FY) 2019-20 to 83.5pc in FY 2020-21. Although total public debt increased from Rs36.398 trillion in FY20 to Rs39.859 trillion in FY21, keeping in view the GDP growth at a percentage of 3.9pc during the period under review, the debt to GDP ratio declined considerably. According to the annual report “State of Economy 2020-21” released by the State Bank of Pakistan (SBP), the government’s domestic debt to GDP also declined from 56.0pc to 55.1pc in FY21 whereas the debt increased from Rs23.28 trillion in FY20 to Rs26.26 trillion. Likewise, the external debt to GDP ratio also fell from 28.5pc in the fiscal year 2019-20 to 26.1pc in the year under review. The percentage of debt from IMF which stood at Rs1.161 trillion during the year 2020-21 also declined from 3.1pc in FY20 to 2.4pc in the previous fiscal year. The report added that the total government debt to GDP ratio fell from 80pc to 74.9pc in the year 2020-21. The external liabilities of the government declined from Rs1.663 trillion in the fiscal year 2019-20 to Rs1.378 trillion in the year 2020-21 while the external liabilities of the government to GDP ratio also declined from 4.0pc to 2.9pc. The private sector external debt also declined to Rs2.54 trillion in the fiscal year 2020-21 from Rs2.628 trillion in the preceding year whereas the external debt to GDP ratio declined from 6.3pc to 5.3pc. The report added that the improvement in the twin deficits, along with revaluation gains due to the appreciation of the PKR against the US Dollar, helped contain the pace of debt accumulation. Notably, the addition in the country’s public debt was the lowest among international peers despite the Covid-19 induced increase in fiscal spending. The maturity profile of debt continued to improve towards long-term instruments and the government was also able to diversify the financing resources. In this regard, the introduction of the Naya Pakistan Certificates (NPC) provided investment opportunities to the Pakistani diaspora in both Rupee and foreign currency-denominated debt instruments. The country also successfully tapped the international capital markets after a gap of three years. The sustainability of public debt also strengthened, with a turnaround in economic activity, expansion in foreign exchange earnings, and the availability of debt relief under the G-20’sDebt Service Suspension Initiative(DSSI). The report, however, added that despite the improvement in the debt sustainability indicators during FY21, further efforts are required on part of the government to reduce the vulnerability of the debt portfolio. First, the high level of public debt has given rise to a substantial increase in interest payments, which stood at 57.7 percent of FBR tax revenues in FY21. Second, the increasing share of floating-rate instruments entails repricing risk, in case of an increase in interest rates.