ISLAMABAD: The Ministry of Finance on Tuesday defended Pakistan’s debt trajectory amid growing criticism over high government borrowings, insisting that sustainability should be measured by the debt-to-GDP ratio rather than absolute rupee amounts.
In a detailed statement, the Ministry said that Pakistan’s debt-to-GDP ratio had fallen from 74 percent in FY22 to 70 percent in FY25, reflecting an improvement in debt sustainability. “Absolute numbers, which rise naturally with inflation, are not meaningful indicators of sustainability in isolation,” the statement noted, stressing that international practice relies on debt measured relative to economic output.
According to the Ministry, Pakistan has taken unprecedented steps to reduce rollover and refinancing risks, including the early repayment of Rs 2,600 billion — the first time in the country’s history such prepayments were made against commercial and central bank obligations. This move, it said, not only lowered refinancing risks but also generated “hundreds of billions of rupees” in interest savings.
The Finance Ministry highlighted that prudent debt and liability management, combined with a lower interest rate environment in FY25, helped save over Rs 850 billion in interest payments compared to budgeted estimates. The allocation for interest payments in the current fiscal year’s budget is Rs 8.2 trillion, down from Rs 9.8 trillion in FY25.
Fiscal indicators also showed relative improvement, with the federal fiscal deficit standing at Rs 7.1 trillion in FY25 compared to Rs 7.7 trillion in FY24. As a share of GDP, the deficit fell to 6.2 percent (consolidated 5.4 percent), while Pakistan posted a historic primary surplus of 2.4 percent of GDP or Rs 2.7 trillion for the second consecutive year.
The government said that debt maturity profiles had strengthened, with the average time to maturity rising to 4.5 years in FY25 from 4.0 years a year earlier. Domestic debt maturity has also lengthened to 3.8 years from 2.7 years.
On the external front, the Ministry reported a $2 billion current account surplus in FY25, the first in 14 years, which it said reduced gross external financing needs. It clarified that part of the increase in external debt reflected IMF Extended Fund Facility inflows and non-cash facilities like the Saudi Oil Fund, while Rs 800 billion of the reported increase was due to exchange-rate valuation rather than fresh borrowing.
“The government’s continued focus on Debt-to-GDP reduction, early repayments, lower interest costs, and a stronger external account underscores its commitment to macroeconomic stability and responsible fiscal management,” the statement concluded.
