Pakistan recorded its slowest public debt growth in two decades during FY2026, with total public debt increasing by just 7.7 percent as the debt-to-GDP ratio declined and the government’s reliance on foreign borrowing continued to shrink.
Adviser to the Finance Minister, Khurram Schehzad, said Pakistan’s debt profile had improved significantly over the past few years. The public debt-to-GDP ratio fell to 68 percent in FY26 from 75 percent in FY23, compared with peak levels of 86-88 percent recorded between FY19 and FY21.
Despite the slower growth, gross public debt rose by Rs. 6.2 trillion during the fiscal year to reach Rs. 86.7 trillion by the end of June 2026. Meanwhile, total debt and liabilities stood at Rs. 99.6 trillion after increasing by Rs. 5.2 trillion, or 5.5 percent.
The government’s dependence on external borrowing also declined. Foreign debt accounted for around 31 percent of total public debt in FY26, down from 37-38 percent over the FY19-FY23 period. As a result, the domestic-to-foreign debt mix improved to 69:31, reducing Pakistan’s exposure to exchange rate fluctuations.
External debt as a share of GDP dropped to a nine-year low of 21.5 percent. During the year, the government also retired Rs. 4.72 trillion in debt ahead of schedule and extended the average maturity of domestic debt from about 2.8 years to more than 3.8 years, lowering refinancing risks.
Debt servicing costs also eased. Interest expenses declined to Rs. 6.9 trillion in FY26 from around Rs. 8.9 trillion a year earlier. Interest payments as a share of combined federal and provincial revenues also fell sharply to 35 percent from 61 percent in FY24.
Pakistan posted its third consecutive primary budget surplus during FY26, while tax revenues grew 11 percent, outpacing the 7.7 percent increase in public debt.
The country also returned to international capital markets after a four-year gap through Eurobond and Panda Bond issuances, with the Panda Bond reportedly attracting subscriptions worth five times the offered amount.
State Bank of Pakistan foreign exchange reserves climbed from $2.9 billion in mid-FY23 to $18.4 billion by the end of FY26, providing import cover of around three months. In July 2026, S&P Global Ratings upgraded Pakistan’s sovereign credit rating from B- to B with a stable outlook.
Despite these improvements, Pakistan’s overall debt burden remains substantial. Total debt and liabilities are approaching Rs. 100 trillion, while the State Bank reported that debt servicing consumed Rs. 12 trillion during FY26, although this was Rs. 1.2 trillion lower than the previous fiscal year due to declining interest rates.
