Pakistan’s debt grew at its slowest pace in two decades during fiscal year 2026, with the growth rate falling to 7.7 percent as the debt-to-GDP ratio declined and the government reduced its exposure to foreign currency debt.
Finance Minister’s Adviser Khurram Schehzad said Pakistan’s debt profile had undergone a significant shift, with debt to GDP falling to 68 percent from 75 percent in FY23 and highs of 86 percent to 88 percent during FY19 to FY21.
Gross public debt, however, still increased to Rs. 86.7 trillion by June 2026, up Rs. 6.2 trillion, or 7.7 percent, during the year. Total debt and liabilities reached Rs. 99.6 trillion, with the broader figure increasing by Rs. 5.2 trillion, or 5.5 percent.
Schehzad said the share of foreign debt in total public debt had fallen to around 31 percent in FY26 from 37 percent to 38 percent during FY19 to FY23. The domestic to foreign debt mix has consequently shifted back to 69:31, reducing the government’s exposure to exchange rate risks.
External debt to GDP also fell to a nine year low of 21.5 percent, while the government retired Rs. 4.72 trillion of debt before maturity. Average domestic debt maturity increased from around 2.8 years to more than 3.8 years during FY26, reducing refinancing risks.
The cost of servicing debt also declined. Schehzad said interest expense fell from around Rs. 8.9 trillion to Rs. 6.9 trillion in one year, while interest payments as a share of total federal and provincial revenues dropped from 61 percent in FY24 to 35 percent in FY26.
Pakistan also recorded three consecutive primary budget surpluses, while tax revenue grew 11 percent in FY26, faster than the 7.7 percent growth in debt. The country also returned to international capital markets after four years through Eurobond and Panda Bond issuances, with the Panda Bond reportedly five times oversubscribed.
Foreign exchange reserves held by the State Bank of Pakistan increased from $2.9 billion in mid FY23 to $18.4 billion in FY26, equivalent to roughly three months of imports. S&P Global Ratings also upgraded Pakistan’s sovereign rating from B minus to B with a stable outlook in July 2026.
Despite the improvement in debt indicators, Pakistan’s total debt and liabilities remain close to Rs. 100 trillion. The State Bank reported that the country spent Rs. 12 trillion on debt servicing during FY26, although this was Rs. 1.2 trillion lower than the previous year, largely due to lower interest rates.
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