Pakistan’s central government debt dropped by Rs430 billion to Rs77.46 trillion in the first two months of fiscal year 2026, according to fresh data from the State Bank of Pakistan (SBP) released Monday. The decline marks a rare month-on-month contraction, even as total debt remains up 10.1% year-on-year.
Domestic debt fell 0.73% to Rs54.1 trillion in July-August FY26, though it remains 11.9% higher than a year ago. On a monthly basis, domestic obligations dropped 1.7%, driven largely by reduced issuance of long-term instruments as the government avoided locking in high interest rates, said Saad Hanif, head of research at Ismail Iqbal Securities.
External debt edged down 0.13% to Rs23.4 trillion over the same period, but is still up 6.2% year-on-year and 0.6% month-on-month, reflecting limited new inflows and currency adjustments. The pace of debt accumulation is slowing after years of expansion, marking early signs of consolidation.
The government recently made an early repayment of Rs2.6 trillion in debt to the SBP and domestic commercial banks, significantly reducing rollover and refinancing risks. The SBP also transferred a budgeted profit of Rs2.4 trillion to the government, providing a further fiscal cushion.
Pakistan also repaid its $500 million Eurobond on schedule, a move that has helped drive down the country’s sovereign default risk. According to Khurram Schehzad, adviser to the finance minister, Pakistan has seen one of the sharpest declines in sovereign default risk globally, now ranking as the second-best performer among emerging markets, behind only Turkiye.
Data from Credit Default Swaps (CDS) reported by Bloomberg show Pakistan’s default probability has dropped by 2,200 basis points over the past 15 months, with the country posting consistent quarterly improvements—unique among its emerging market peers.
Schehzad highlighted the trend on social media platform X, noting that Pakistan is the only country in the EM sample to show uninterrupted progress in reducing default risk over the past year.
