Pakistan’s public debt climbs to 70.7% of GDP, breaching legal ceiling

Pakistan’s public debt has risen to 70.7 per cent of gross domestic product in the current financial year, far exceeding the statutory ceiling set by Parliament and highlighting deepening fiscal stress, according to the country’s latest Debt Policy Statement 2026.

An analysis published by Karachi-based Business Recorder said public debt in FY2024–25 overshot the legally permitted limit of 56 per cent of GDP by around Rs 16.8 trillion, amounting to a breach of nearly 15 percentage points of GDP. The report described the overrun as evidence of persistent failure to enforce fiscal discipline.

The article argued that Pakistan’s fiscal framework has become characterised by unchecked spending, followed by increased borrowing to cover the gap, with justifications offered only after debt limits are crossed. Legal safeguards meant to restrain borrowing are routinely bypassed, while Parliament is often informed after the fact and without meaningful consequences for the executive.

As a result, debt servicing now consumes roughly half of the federal budget, sharply reducing funds available for development expenditure. The squeeze has weakened the Public Sector Development Programme and led to higher taxes, adding pressure on households and businesses.

Domestic debt servicing has been the main driver of expenditure growth over the past three years, the report noted, crowding out productive investment and reinforcing what it described as a growing debt trap. Against this backdrop, official assurances to lawmakers on fiscal management were described as lacking credibility.

While the government has acknowledged a deterioration in the debt-to-GDP ratio, it has reiterated its commitment to the Fiscal Responsibility and Debt Limitation Act, pledging to restore sustainability through fiscal consolidation, primary surpluses and a gradual reduction in the deficit.

However, the Fiscal Policy Statement 2026 shows that the federal fiscal deficit has also breached its parliamentary limit, exceeding it by 2.7 per cent of GDP. With both key fiscal anchors — debt and deficit — crossed simultaneously, the report questioned the plausibility of a near-term turnaround.

Early indicators in the current year have added to concerns. The Federal Board of Revenue has reportedly fallen short of its revenue target by Rs 347 billion for the July–January period, even as the government increasingly relies on financial engineering to manage mounting debt pressures.

With IANS inputs