KARACHI: Government debt increased by Rs641 billion, or 0.82 per cent, at the end of December, underscoring ongoing borrowing needs primarily from domestic sources, as well as challenges related to fiscal consolidation.
As of December 2025, the total government debt reached Rs78.5 trillion, up from Rs77.8 trillion at the end of June, according to data published by the State Bank of Pakistan (SBP) on Wednesday. This debt reflects a month-on-month increase of 1.3 per cent and a year-on-year (YoY) growth of 9.6 per cent.
The government’s debt increased, even though the country recorded a budget surplus of Rs542 billion, or 0.4 per cent of GDP, in July-December FY26, in contrast to a deficit of Rs1.5 trillion, or 1.3 per cent of GDP, during the same period last year.
The increase in central government debt reflects persistent fiscal needs and rollover of existing obligations, said Saad Hanif, head of research at Ismail Iqbal Securities.“The increase remains primarily domestic-debt driven, particularly through PIBs, sukuk and Treasury bills, indicating the government’s ongoing reliance on local banking liquidity amid relatively tight external financing conditions,” Hanif said.
“External debt growth stayed comparatively contained, suggesting stable FX borrowing but persistent pressure on domestic interest costs,” he added. “Overall, while the MoM pace appears manageable, the elevated debt stock continues to highlight fiscal consolidation challenges and is sensitive to interest-rate movements going forward.”
According to central bank data, the domestic debt reached Rs55.4 trillion at the end of December, representing an increase of 1.63 per cent, or Rs891 billion, compared to June. When compared to November, this debt rose by 1.4 per cent and increased by 11 per cent compared to a year earlier.
In terms of external debt, it amounted to Rs23.1 trillion, which reflects a decrease of 1.0 per cent, or Rs251 billion, in the first six months of the fiscal year 2026. However, the external debt rose by 1.1 per cent compared to the previous month and increased by 6.4 per cent compared to December last year.
The country’s gross public debt increased to Rs81.3 trillion by the end of the first half of FY26, up from Rs80.5 trillion at the end of June. As of the end of December, Pakistan’s total debt and liabilities rose to Rs95.5 trillion compared to Rs87.9 trillion by the end of December 2024.
Despite these increases, total debt and liabilities servicing fell to Rs5.2 trillion in July-December FY26, down from Rs6.9 trillion during the same period last year. Interest payments on the debt amounted to Rs3.7 trillion in July to December FY26, compared to Rs5.5 trillion in the same period last year.
The government asserts that its fiscal position is improving, having retired Rs3.65 trillion in domestic debt ahead of schedule since late 2024, amid a shift towards early repayments and a reduction in refinancing risks. However, gross public debt surged to 70.7 per cent of GDP in the fiscal year 2025, exceeding the maximum allowable debt limit set by the Fiscal Responsibility and Debt Limitation Act.
These elevated and unsustainable debt levels consume half of the annual budget, leaving little room for development and social spending. This situation imposes an additional tax burden on ordinary citizens, who are already facing financial strain.
In dollar terms, Pakistan’s total outstanding external debt and liabilities increased to $138 billion as of December 31, 2025, up from $136 billion at the end of June. In the second quarter of FY26, the country’s external debt servicing payments totalled $4.1 billion, an increase from $3.5 billion in the previous quarter. This amount included $1.3 billion paid in interest, which is up from $1.2 billion in the first quarter of this fiscal year. Additionally, $2.7 billion was allocated for principal repayment compared to $2.3 billion in the July-September FY26 period.
