KARACHI: Pakistan’s government debt increased by Rs641 billion, or 0.82%, by the end of December 2025, reflecting ongoing borrowing needs and challenges to fiscal consolidation, according to data released by the State Bank of Pakistan (SBP). Total government debt reached Rs78.5 trillion, up from Rs77.8 trillion in June. The debt stock rose 1.3% month-on-month and 9.6% year-on-year.
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The increase occurred despite a budget surplus of Rs542 billion, or 0.4% of GDP, in the first half of fiscal year 2026, compared with a deficit of Rs1.5 trillion, or 1.3% of GDP, in the same period last year. Analysts say the rise is primarily driven by domestic borrowing through Pakistan Investment Bonds (PIBs), sukuk, and Treasury bills, indicating reliance on local banking liquidity amid tight external financing conditions.
Domestic debt reached Rs55.4 trillion by December, up Rs891 billion from June, while external debt decreased by 1% to Rs23.1 trillion but rose 1.1% compared with November and 6.4% year-on-year. Gross public debt climbed to Rs81.3 trillion in the first half of FY26, while total debt and liabilities stood at Rs95.5 trillion, up from Rs87.9 trillion in December 2024.
Despite the rising debt, servicing costs fell to Rs5.2 trillion in July–December FY26 from Rs6.9 trillion the previous year, with interest payments declining to Rs3.7 trillion from Rs5.5 trillion. The government highlighted early repayments totaling Rs3.65 trillion since late 2024 to reduce refinancing risks.
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However, elevated debt levels, which now consume around 50% of the annual budget, limit development and social spending and place a heavy burden on citizens. Pakistan’s total external debt and liabilities stood at $138 billion by December, with $4.1 billion spent on debt servicing in the second quarter of FY26, including $1.3 billion in interest and $2.7 billion for principal repayment.
Experts caution that while the month-on-month rise appears manageable, persistent high debt and interest costs pose significant challenges to Pakistan’s fiscal sustainability.