Pakistan’s Interest Payments to Hit Rs. 8 Trillion as Debt Costs Squeeze Budget

0 13 2 minutes read

Pakistan’s interest payments on domestic and external debt are expected to remain elevated over the medium term, continuing to consume… Read More The post Pakistan’s Interest Payments to Hit Rs. 8 Trillion as Debt Costs Squeeze Budget appeared first on ProPakistani.

Pakistan’s interest payments on domestic and external debt are expected to remain elevated over the medium term, continuing to consume a major share of government resources and putting pressure on the country’s fiscal framework.

Interest payments have already outpaced defence and development expenditure simultaneously, with the growing debt burden adding to the government’s financial strain.

According to a report, interest payments are projected to reach Rs. 8.054 trillion in the current fiscal year. The amount could rise slightly following the State Bank of Pakistan’s Monetary Policy Committee decision to increase the policy rate by 50 basis points to 12 percent from 11.5 percent.

The government has increasingly presented the acquisition of debt, particularly from foreign lenders, as a major achievement. However, the rising cost of servicing that debt is creating serious risks for the fiscal framework, despite the government’s claim that the country’s debt-to-GDP ratio is declining.

Interest Payments Leave Limited Federal Resources

Debt servicing has consumed a substantial portion of the tax and non-tax revenues generated by the country. After transferring the provinces’ share under the National Finance Commission (NFC) Award, the federal government is left with limited resources to meet its obligations.

In previous years, the Centre would slip into a deficit after making interest payments. However, since the last fiscal year, the federal government has been left with net revenue receipts of around Rs. 3 trillion after servicing its debt.

The federal fiscal deficit has consequently remained around Rs. 7 trillion, while the consolidated deficit could be brought down to just over Rs. 5 trillion only with the provinces generating annual revenue surpluses of Rs. 1.5 trillion to Rs. 2 trillion.

Officials described the arrangement as an ad hoc measure that would not provide a sustainable solution. The federal government has also borrowed more than Rs. 1.035 trillion by invoking Article 164 of the 1973 Constitution.

IMF Projects Interest Bill Above Rs. 10 Trillion

According to the Ministry of Finance’s projections, interest payments could reach Rs. 8.68 trillion by FY2029.

The International Monetary Fund (IMF) has projected a continued increase in Pakistan’s interest payments over the coming years, with the bill expected to exceed Rs. 10 trillion by FY2031.

The IMF’s projections are as follows:

FY2026-27: Rs. 7.284 trillion
FY2027-28: Rs. 8.273 trillion
FY2028-29: Rs. 8.681 trillion
FY2029-30: Rs. 9.365 trillion
FY2030-31: Rs. 10.322 trillion

“The debt servicing pressure will remain elevated over the medium term,” official sources said.

Fiscal Deficit to Remain Elevated

The federal fiscal deficit is projected at Rs. 7 trillion, or 4.9 percent of GDP, in the current fiscal year.

The deficit is expected to reach Rs. 7.1 trillion, or 4.5 percent of GDP, in FY2027-28, before rising to Rs. 7.5 trillion, or 4.2 percent of GDP, in FY2028-29.

The projections underline the persistent pressure that debt servicing is expected to place on the federal budget, limiting the government’s fiscal space for other spending priorities.

The post Pakistan’s Interest Payments to Hit Rs. 8 Trillion as Debt Costs Squeeze Budget appeared first on ProPakistani.