ISLAMABAD: Pakistan’s contingent liabilities, largely in the form of sovereign guarantees issued for state-owned enterprises (SOEs), have climbed to Rs4.32 trillion as of March 2026, underscoring the expanding fiscal exposure on the government’s balance sheet.
The stock is projected to rise further to Rs5 trillion by June 2027, driven by fresh commitments tied to large infrastructure and energy projects. These guarantees, extended primarily to state-owned enterprises (SOEs), are used to facilitate borrowing at lower costs, unlock concessional financing, and support critical infrastructure and economic operations. While not classified as direct public debt, they represent potential obligations that may materialise if borrowing entities fail to meet repayment commitments.
Looking ahead, the government is set to further expand this exposure, with planned guarantee issuance of Rs907 billion during FY27 (including Q4 FY26). These future commitments are tied to major development and infrastructure projects such as the Reko Diq mining project (Rs223 billion), the ML-3 railway project (Rs113 billion), and the C-5 power project (Rs221 billion). Additional allocations include Rs90 billion for public-private partnership projects, Rs50 billion for Water and Power Development Authority (Wapda), Rs19 billion for National Grid Company of Pakistan (NGC), Rs50 billion for Pakistan State Oil (PSO), Rs80 billion for credit guarantee schemes, Rs10 billion for the Export-Import Bank of Pakistan (EXIM Bank), and Rs50 billion for miscellaneous and contingency requirements.
During July-March FY2026, the government issued Rs769 billion in fresh and rolled-over guarantees, equivalent to 0.61 per cent of GDP, remaining within the statutory ceiling of 2.0 per cent of GDP under the Fiscal Responsibility and Debt Limitation framework. After accounting for expected repayments of Rs224 billion against existing guaranteed loans, net issuance is projected at Rs683 billion, which will push the total outstanding stock from Rs4.32 trillion to around Rs5.005 trillion by June 2027.
The guarantee portfolio remains heavily concentrated in the power sector, which accounts for Rs2.43 trillion or 56 per cent of total exposure. This reflects persistent reliance on sovereign-backed financing within the energy chain, particularly through entities involved in electricity procurement and distribution such as the Central Power Purchasing Agency-Guaranteed (CPPA-G). Structural issues including circular debt and liquidity constraints continue to make the energy sector the largest source of contingent fiscal risk.
Commodity operations form the second-largest segment at Rs895 billion (21 per cent), driven by government-backed procurement and storage activities managed by the Trading Corporation of Pakistan (TCP) and the Pakistan Agricultural Storage and Services Corporation (PASSCO). These interventions help stabilise food supply and prices but expose the government to repayment and inventory risks during periods of volatility.
At the entity level, exposure is concentrated among a small group of SOEs, led by the Pakistan Atomic Energy Commission (PAEC), followed by CPPA-G and PASSCO. Other significant contributors include Pakistan State Oil (PSO) and the Water and Power Development Authority (Wapda), which remain central to the country’s energy and infrastructure financing framework.
Beyond these core areas, guarantees are also distributed across aviation (Rs269 billion), the financial sector (Rs166 billion), and other categories (Rs567 billion), reflecting a diversified but still concentrated risk profile. Interest-rate exposure is nearly balanced, with 51 per cent floating-rate and 49 per cent fixed-rate guarantees, while most underlying obligations carry a five-year maturity profile, indicating ongoing refinancing and rollover pressures.
Overall, Pakistan’s guarantee profile has risen from Rs4.32 trillion in FY2026 to a projected Rs5 trillion by FY2027, driven significantly by planned FY2027 commitments.
