Pakistan’s economy is grappling with a mounting debt crisis as public debt has skyrocketed to 70.7% of GDP in the fiscal year 2024-25, far surpassing the parliamentary cap of 56%. This alarming revelation comes from the government’s latest ‘Debt Policy Statement 2026’, highlighting a stark violation of legal debt thresholds.
The excess borrowing amounts to 16.8 trillion Pakistani rupees, equivalent to 14.7% of GDP beyond the mandated limit. This escalation underscores deep-rooted issues in fiscal governance, where spending precedes funding, followed by justifications for further loans. Financial discipline rules are routinely bypassed, with parliament informed only after limits are breached, leaving the executive unaccountable.
The nation’s consumption-driven economic model remains resistant to reforms and overly reliant on debt. Consequently, nearly half of the central budget now goes toward debt servicing, squeezing funds for development projects. The Public Sector Development Programme (PSDP) is weakening, productive investments are stalled, and taxpayers face heavier burdens through new levies.
Over the past three years, domestic debt repayments have emerged as the largest driver of government expenditure, curtailing growth initiatives and trapping the economy in a debt spiral. Despite assurances from the Finance Ministry, these developments paint a picture of hollow commitments.
The government acknowledges the deteriorating debt-to-GDP ratio but insists on its dedication to the Fiscal Responsibility and Debt Limitation Act. Plans include fiscal tightening, generating primary surpluses, and gradually reducing deficits to stabilize public debt. However, early indicators for the current fiscal year are discouraging, with the Federal Board of Revenue missing revenue targets by 347 billion rupees from July to January. Reliance on financial engineering to mask debt pressures is intensifying.