Public debt surges 76pc to Rs86.7tr in four years

ISLAMABAD: With total public debt surging 76 per cent since June 2022 and gross financing needs (GFNs) reaching Rs28.65 trillion for the current fiscal year, the government on Tuesday announced plans to borrow an additional Rs6.86tr to finance the budget deficit.

“Total public debt was recorded at Rs86.7tr at the end of June 2026 from Rs49.3tr at the end of June 2022, a 76pc increase over four years,” the Ministry of Finance said in its Annual Borrowing Plan 2027. It said the total public debt comprised Rs59.4tr in domestic debt and Rs27.3tr equivalent in external debt.

The net additional debt this year would comprise Rs6.046tr of domestic borrowing and Rs813bn in external borrowing. The total federal fiscal deficit is projected at Rs7.020tr, and after adding domestic and external maturities, total GFNs are projected at Rs28.647tr, approximately 20pc of GDP for FY27, it added.

The ministry said it will reduce reliance on short-term treasury bills on a net issuance basis, replacing T-bill maturities with medium- to longer-term tenor instruments, with higher net issuances of Rs4.58tr of Pakistan Investment Bonds (PIBs), with fixed-rate PIBs targeted to exceed 50pc of new issuances. Importantly, floating-rate exposure would be limited to the 10-year sukuk on a variable rate of return only.

Govt plans additional borrowing of Rs6.86tr in FY27

The government also planned Ijara sukuk/Bai Muajjal to the extent of Rs3.785tr, supported by the new hybrid sukuk and short-term sukuk (3-6 months) structures. Gross annual sukuk issuances are targeted at about Rs6.6tr.

To attract institutional investors, the government will continue to use 2- and 15-year zero-coupon bonds and, where required, introduce new long-dated instruments after consulting all stakeholders.

In addition, liability management operations (buybacks/exchanges) will continue, subject to available fiscal space and suitable market conditions. Moreover, National Savings Schemes (NSS) restructuring is underway to improve products, introduce market-driven pricing and digitalisation, and deepen retail investor participation.

“Net external financing is projected at Rs813bn, equivalent to $2.804bn,” it said, adding that the external financing plan will focus on $1.58bn net inflows from multilateral lenders as the primary external source.

In addition, the government plans higher international capital market issuances in FY27, aiming for over $2bn in Eurobonds or International sukuk, subject to market conditions. These issuances will also enable the government to replace short-term debt with longer-dated, market-based financing. The government has already raised $3bn in Eurobonds last month.

Foreign commercial bank financing would also be refinanced alongside new facilities to help meet external funding requirements, subject to suitable market conditions. In addition, non-resident investment via Naya Pakistan Certificates and government securities would be facilitated with a Rs1.122tr target.

To support market access, the government would maintain active engagement with sovereign credit rating agencies. Overall, for domestic debt, primary emphasis will be on increasing the share of fixed-rate instruments and diversifying the debt portfolio by developing Shariah-compliant sukuk markets, retail instruments and long-term bonds for institutional investors.

In external financing, priority will be given to increased international capital market issuances subject to a suitable international macro-environment.

It said the demand from long-term institutional investors was expected to support the new issuance of zero-coupon bonds. The zero-coupon bonds have attracted strong interest from both commercial banks and non-bank institutional investors, and the plan is to continue using these instruments to optimise the overall debt profile, it said, adding that the government would remain committed to prudent debt management through continued buyback and debt switch operations.

The ministry noted that over the past ten fiscal years (FY17 to FY26), an average of 81pc of the fiscal deficit was financed through domestic sources, while external financing accounted for the remaining 19pc. FY26 saw 25pc of the federal deficit financed through external sources, a level last reached in FY20.

Published in Dawn, September 30th, 2026