Interest expenditure decreased to Rs6.948 trillion in fiscal year 2026 from Rs8.887 trillion in fiscal year 2025, reflecting a 22 percent reduction. As a result, the federal fiscal deficit considerably narrowed to Rs4.763 trillion from Rs7.089 trillion, and the federal primary surplus rose from Rs1.798 trillion to Rs2.185 trillion
According to the Fiscal Responsibility and Debt Limitation Act, total government debt was calculated at Rs77.168 trillion, representing 60.8 percent of GDP decreasing from 64.2 percent as of June 2025
By the end of June 2026, the nation’s overall public debt had increased by 7.7 percent to approximately Rs86.72 trillion. This marks a slowdown from the previous year’s 13 percent growth. The public debt-to-GDP ratio also fell, dropping to 68.3 percent from 70.6 percent, as reported in the Annual Debt Review FY2026.
According to the Debt Management Office (DMO) of the Ministry of Finance, the gradual pace of debt accumulation is due to fiscal consolidation, a federal primary surplus of Rs2.185 trillion, and a 22 percent reduction in interest expenditure during the fiscal year 2026.
The review revealed that domestic debt expanded by 9 percent to Rs59.441 trillion, while external debt increased by 6.8 percent, totalling USD 98.075 billion for the year. In dollar terms, total public debt amounted to USD 312 billion.
Interest expenditure decreased to Rs6.948 trillion in fiscal year 2026 from Rs8.887 trillion in fiscal year 2025, reflecting a 22 percent reduction. As a result, the federal fiscal deficit considerably narrowed to Rs4.763 trillion from Rs7.089 trillion, and the federal primary surplus rose from Rs1.798 trillion to Rs2.185 trillion.
The report noted that fiscal consolidation continued to make progress, with net federal revenues growing by 6 percent year-on-year to reach Rs10.52 trillion. In contrast, total non-interest expenditure increased by only 2.3 percent compared to 15 percent in FY25.
According to the Fiscal Responsibility and Debt Limitation Act, total government debt was calculated at Rs77.168 trillion, representing 60.8 percent of GDP decreasing from 64.2 percent as of June 2025.
During fiscal year 2026, the government covered 75 percent of the federal fiscal deficit via domestic borrowing, with the remaining 25 percent sourced externally. Net external financing rose to Rs1.177 trillion, while net domestic financing reached Rs3.586 trillion.
The domestic debt portfolio experienced notable changes, including a 25 percent growth in the stock of Market Treasury Bills to Rs10.928 trillion and a 35 percent increase in Sukuk and Bai-Muajjal financing, bringing it to Rs8.559 trillion.
The proportion of floating-rate PIBs fell to 37.2 percent from 43 percent, whereas the share of fixed-rate PIBs rose to 21.7 percent from 17.2 percent. The average maturity of domestic debt was recorded at 3.82 years, with the Average Time to Refixing increasing to 1.3 years.
Commercial banks remained the primary holders of government securities, with their share increasing from 64 percent a year ago to 70 percent of domestic debt. Conversely, the share held by the State Bank of Pakistan decreased to 5 percent due to liability management operations.
On the external front, the government enhanced the maturity profile, with medium- and long-term debt comprising 84 percent of external public debt by the end of June 2026, up from 76 percent one year prior. Short-term external debt fell from 24 percent to 16 percent.
Pakistan also re-entered international capital markets in fiscal year 2026 after a gap of four years, and issued a Eurobond worth USD 750 million in April 2026 and a Panda bond totalling CNY 1.75 billion in May 2026.
The report indicated that external borrowing accounted for Rs1.177 trillion in financing the fiscal deficit. External budgetary disbursements reached USD 15.6 billion, which included USD 5.4 billion from multilateral sources, USD 4.9 billion from commercial sources, USD 4.3 billion from bilateral development partners, and USD 1 billion through bonds.
Throughout FY-26, external debt rose to USD 98,075 million, marking a year-on-year increase of 6.8 percent, slightly exceeding the 6.1 percent rise observed during the same period of the prior fiscal year. Multilateral creditors represented the largest share of lending sources, contributing 45.5 percent to total external debt (USD 44,621 million), followed by bilateral creditors, which accounted for 28 percent (USD 27,310 million), inclusive of bilateral deposits.
Commercial borrowing avenues, such as Eurobonds and commercial banks, account for a total share of 13 percent (USD 12,848 million). By June 26, the IMF’s outstanding balance reached USD 11,050 million, reflecting ongoing disbursements related to the EFF and the Resilience and Sustainability Facility.
The IMF’s claims now constitute 11 percent of the overall external public debt, with the remaining 2 percent mainly consisting of retail lending in the form of Naya Pakistan Certificates (NPC). It is noteworthy that multilateral and bilateral sources continue to dominate external borrowing, typically offering long-term loans at concessional rates.
As of June 26, the Federal Government holds 84 percent of Pakistan’s external public debt, while 16 percent is associated with provincial and sub-national governments. Among the provinces, Punjab is the largest borrower at USD 6.40 billion (7 percent), followed by Sindh at USD 5.62 billion (6 percent) and Khyber Pakhtunkhwa at USD 2.97 billion (3 percent). The remaining debt includes Balochistan at USD 390 million, Gilgit-Baltistan at USD 69 million, and Azad Jammu & Kashmir at USD 180 million, with each representing less than 1 percent of the total external public debt.
During FY26, the government repaid Rs1.926 trillion of SBP debt and executed market debt buybacks totalling Rs996 billion, utilising Rs1.133 trillion of SBP profits for debt repayment.
By the end of June 2026, government guarantees stood at Rs4.283 trillion, which includes Rs2.238 trillion in domestic guarantees and Rs2.045 trillion in external guarantees. New and renewed guarantees issued during the year amounted to Rs812.8 billion, with the power sector making up approximately 56 percent of the outstanding guarantees.
