Pakistan’s interest payments on public debt have exceeded Rs28.6 trillion over the past five years, reflecting a sharp increase in debt servicing costs that is severely constraining the government’s fiscal flexibility. During this period, the country’s public debt more than doubled, reaching Rs83.285 trillion by 2026, Finance Ministry data.
The government disbursed Rs28,675 billion in interest on both domestic and external debt, which stood at Rs83,285 billion by 2026. A senior official from the Finance Ministry described the situation as a structural debt trap, emphasizing that a significant portion of new borrowings is being allocated to servicing existing debt rather than financing productive investments. This trend indicates a shrinking fiscal space, with debt doubling in only five years.
Meanwhile, ongoing reliance on external financing, including support from the International Monetary Fund, exposes Pakistan to exchange-rate volatility and conditionalities tied to such assistance. The official warned that without comprehensive tax reforms, tighter expenditure controls, and a stronger export-driven economy, the cycle of rising debt and interest payments could become self-sustaining, undermining long-term economic stability.
From 2020 to 2026, Pakistan’s public debt surged from Rs36.399 trillion to Rs83.285 trillion. The debt stock increased steadily each year: Rs39.860 trillion in 2021, Rs49.242 trillion in 2022, Rs62.881 trillion in 2023, Rs71.246 trillion in 2024, and Rs80.518 trillion in 2025. These figures demonstrate that the debt burden has expanded despite repeated fiscal adjustment efforts aimed at curbing borrowing.
The Finance Ministry’s latest Debt Bulletin reported total public debt at Rs81.374 trillion by the end of December 2025, comprising Rs55.363 trillion in domestic debt and Rs26.011 trillion in external debt. Notably, public debt grew by only 1.1 percent in the first half of fiscal year 2025-26, compared to increases of 3.9 percent and 7.1 percent during the same periods in the two preceding years.
Domestic borrowing remains the dominant component of Pakistan’s debt, rising from Rs23.283 trillion in 2020 to Rs57.566 trillion in 2026, while external debt climbed from Rs13.116 trillion to Rs25.720 trillion over the same timeframe. At the end of 2025, domestic debt accounted for approximately 68 percent of the total, with external debt representing about 32 percent. The Finance Ministry highlighted that the reduced share of external debt has lowered exposure to exchange-rate fluctuations, though external borrowing continues to pose currency risks.
Pakistan’s current debt-management strategy focuses on extending the maturity of domestic debt to reduce sensitivity to interest rate changes. Simultaneously, efforts are underway to minimize currency risk and decrease the proportion of external debt in the overall portfolio.
The burden of debt servicing is starkly visible in the federal budget for fiscal year 2026-27. The government has allocated Rs8.054 trillion for interest payments, making it the largest component of current expenditures, which total Rs17.495 trillion. Projected net revenue receipts stand at Rs11.751 trillion, meaning the interest bill alone consumes about 69 percent of the government’s expected revenue. This highlights the pressure debt servicing places on funding for development, infrastructure, and public services.
On a more positive note, the Finance Ministry’s fiscal policy statement noted that Pakistan achieved a primary surplus equal to 2.4 percent of GDP in fiscal year 2024-25, reflecting efforts to contain non-development spending and enhance fiscal space. However, tax revenues fell short of targets, underscoring ongoing challenges in boosting government income.
The latest Debt Bulletin also recorded a federal primary surplus of Rs2.926 trillion in the first half of fiscal year 2025-26 and noted a year-on-year decline in interest costs during this period. The government is striving to improve debt structure by focusing on longer maturities, increased use of fixed-rate instruments, and limiting the issuance of short-term treasury bills.
External financing remains a critical aspect of Pakistan’s debt management. The government continues to rely on multilateral and bilateral creditors, as well as IMF programs, to meet external financing needs and bolster foreign exchange reserves. Although the share of external debt has decreased, it remains a significant element of the total debt stock, with efforts ongoing to reduce vulnerability to exchange-rate fluctuations.
The central challenge for Pakistan is not just the size of its debt but the escalating cost of servicing it. High interest rates, refinancing demands, and currency volatility can increase the debt burden even if new borrowing is controlled.
To break free from this debt cycle, Pakistan must enhance domestic revenue generation, implement expenditure reforms, and pursue stronger economic growth. The government has repeatedly aimed to broaden the tax base, improve revenue collection, and reduce non-development expenditures. Yet, the persistent large interest bill means a substantial share of public funds remains committed to servicing past debt.
Ultimately, the government must generate sufficient revenue and economic expansion to lessen reliance on borrowing while keeping debt servicing costs manageable. Until these goals are achieved, rising interest payments will continue to restrict fiscal space for development and other priorities.
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