Pakistan’s total public debt climbed to around Rs86.72 trillion by the end of June 2026, marking a 7.7% increase during the year.
However, the pace of debt growth slowed compared with the 13% increase recorded a year earlier.
At the same time, the public debt-to-GDP ratio declined from 70.6% to 68.3%, according to the Annual Debt Review FY2026.
The Ministry of Finance’s Debt Management Office (DMO) attributed the slower debt accumulation to fiscal consolidation, a federal primary surplus and lower interest expenditure.
The federal primary surplus reached Rs2.185 trillion during fiscal year 2026. Meanwhile, interest expenditure fell by 22% during the same period.
Domestic and External Debt Rise
Pakistan’s domestic debt increased by 9% during FY2026, reaching Rs59.441 trillion. Meanwhile, external debt rose by 6.8% to USD98.075 billion. In dollar terms, total public debt stood at USD312 billion.
The reduction in interest costs also affected the overall fiscal position during the year. Interest expenditure declined from Rs8.887 trillion in FY2025 to Rs6.948 trillion in FY2026.
As a result, the federal fiscal deficit narrowed from Rs7.089 trillion to Rs4.763 trillion. Meanwhile, the federal primary surplus increased from Rs1.798 trillion to Rs2.185 trillion.
Fiscal Consolidation Supports Debt Management
The debt review showed continued progress in fiscal consolidation during FY2026. Net federal revenues increased by 6% year-on-year to Rs10.52 trillion.
However, total non-interest expenditure increased by only 2.3%, compared with 15% growth during FY2025. Under the definition used in the Fiscal Responsibility and Debt Limitation Act, total government debt stood at Rs77.168 trillion.
That amount represented 60.8% of GDP, down from 64.2% at the end of June 2025. The figures therefore show a decline in the debt-to-GDP ratio despite the increase in the overall public debt stock.
How Pakistan Financed Its Fiscal Deficit
The government financed 75% of the federal fiscal deficit through domestic borrowing during FY2026. The remaining 25% came through external sources.
Net external financing increased to Rs1.177 trillion, while net domestic financing stood at Rs3.586 trillion. The domestic debt portfolio also underwent several changes during the year.
The stock of Market Treasury Bills increased by 25% to Rs10.928 trillion. Meanwhile, Sukuk and Bai-Muajjal financing rose by 35% to Rs8.559 trillion.
Shift in Domestic Debt Structure
The composition of Pakistan’s domestic debt also changed during FY2026. The share of floating-rate Pakistan Investment Bonds (PIBs) declined from 43% to 37.2%.
In contrast, the share of fixed-rate PIBs increased from 17.2% to 21.7%. The average maturity of domestic debt stood at 3.82 years.
Meanwhile, the Average Time to Refixing increased to 1.3 years. Commercial banks remained the largest holders of government securities.
Their share increased to 70% of domestic debt from 64% a year earlier. However, the State Bank of Pakistan’s share declined to 5% following liability management operations.
External Debt Maturity Improves
The government also recorded a change in the maturity structure of external public debt. Medium- and long-term debt accounted for 84% of external public debt at the end of June 2026.
That share increased from 76% a year earlier. Consequently, the share of short-term external debt declined from 24% to 16%.
Pakistan also returned to international capital markets during FY2026 after a four-year gap. The government issued a USD750 million Eurobond in April 2026.
It then issued a CNY1.75 billion Panda bond in May 2026.
External Borrowing and Budgetary Financing
External borrowing contributed Rs1.177 trillion toward financing the federal fiscal deficit during FY2026. External budgetary disbursements reached USD15.6 billion during the year.
Multilateral sources provided USD5.4 billion of that amount. Commercial sources contributed USD4.9 billion, while bilateral development partners provided USD4.3 billion.
The remaining USD1 billion came through bonds. According to the debt review, Pakistan’s external debt reached USD98.075 billion by June 2026.
That represented a 6.8% year-on-year increase, slightly higher than the 6.1% increase recorded during the same period of the previous fiscal year.
Who Holds Pakistan’s External Debt?
Multilateral creditors remained the largest source of Pakistan’s external debt. They accounted for 45.5% of total external debt, equivalent to USD44.621 billion.
Bilateral creditors followed with a 28% share, amounting to USD27.310 billion. This figure also includes bilateral deposits.
Commercial borrowing sources, including Eurobonds and commercial banks, held a combined 13% share.
Their total exposure stood at USD12.848 billion. Meanwhile, the IMF’s outstanding amount increased to USD11.050 billion by June 2026.
The increase reflected programme-related disbursements under the Extended Fund Facility and the Resilience and Sustainability Facility. IMF claims accounted for 11% of total external public debt.
The remaining 2% mainly consisted of retail lending through Naya Pakistan Certificates. The debt review noted that most external loan sources continued to come from multilateral and bilateral creditors.
These sources generally provide long-term financing and concessional rates.
Federal Government Holds Majority of External Debt
As of June 2026, the Federal Government accounted for 84% of Pakistan’s external public debt. Provincial and sub-national governments accounted for the remaining 16%.
Among the provinces, Punjab remained the largest borrower. Punjab’s external debt stood at USD6.40 billion, representing 7% of total external public debt. Sindh followed with USD5.62 billion, equivalent to 6%. Khyber Pakhtunkhwa accounted for USD2.97 billion, or 3% of the total.
The remaining exposure included Balochistan, Gilgit-Baltistan and Azad Jammu and Kashmir. Balochistan’s external debt stood at USD390 million. Gilgit-Baltistan accounted for USD69 million, while Azad Jammu and Kashmir had USD180 million.
Each represented less than 1% of Pakistan’s total external public debt.
Government Retires SBP Debt
The government also took steps to reduce certain debt liabilities during FY2026. It retired Rs1.926 trillion of State Bank of Pakistan debt during the year.
In addition, the government conducted market debt buybacks worth Rs996 billion. SBP profits also contributed to debt retirement, with Rs1.133 trillion used for this purpose.
Overall, Pakistan’s public debt increased during FY2026, but the Annual Debt Review showed slower debt accumulation than the previous year.
At the same time, lower interest expenditure, a higher primary surplus and changes in the financing structure shaped the country’s debt position by the end of June 2026.
For the latest updates, visit and follow The Truth International website (www.thetruthinternational.com) and subscribe to the YouTube Channel.
