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Pakistan’s public debt does not automatically cause inflation, higher interest rates, or a weaker rupee. The effects depend on how the government finances its borrowing, how debt is structured, whether fiscal and monetary policy remain credible, and the country’s access to foreign currency and reserves.
How large is Pakistan’s public debt, and what does the total mean?
At end-March 2025, Pakistan’s public debt stood at Rs 76,007 billion: Rs 51,518 billion in domestic debt and Rs 24,489 billion in external debt, according to the Ministry of Finance’s Pakistan Economic Survey 2024–25. That nominal stock is a snapshot of outstanding debt, not the amount the government pays in interest each year.
A separate measure puts the debt in relation to the size of the economy. The State Bank of Pakistan (SBP) reported public debt at 70.8 percent of GDP at end-June 2025, up from 67.7 percent at end-June 2024. These are debt-to-GDP readings for different dates from the Ministry’s end-March nominal figures; they should not be treated as if they describe the same reporting date or measure.
Debt risk also depends on terms, not just the headline total. Domestic debt is generally denominated in rupees, while external debt creates foreign-currency repayment exposure. Short maturities bring financing needs forward; floating-rate obligations can reprice as market yields change. Fixed-rate debt offers more predictable interest costs until it matures or must be refinanced.
| Measure | Reported value | What it tells you |
|---|---|---|
| Public-debt stock | Rs 76,007 billion at end-March 2025 | Outstanding nominal debt at that date; not annual interest expense. |
| Domestic and external components | Rs 51,518 billion domestic; Rs 24,489 billion external at end-March 2025 | The external portion is directly exposed to exchange-rate changes in rupee terms. |
| Public debt as a share of GDP | 70.8% at end-June 2025; 67.7% at end-June 2024 | A ratio from the SBP, at dates different from the nominal stock above. |
| Markup expenditure | Rs 6,439 billion in July–March FY2025 | Nine-month interest/markup outlay; 66% of the FY2025 full-year budget estimate of Rs 9,775 billion. |
The Ministry’s nine-month markup figure includes Rs 5,783 billion in domestic interest. Markup is a flow of financing cost over a period; it is distinct from both the debt stock and the SBP’s monetary-policy rate.
Does Pakistan’s debt cause inflation?
Not by itself. Borrowing can add to inflation risk when deficits and government financing support demand faster than the economy can supply goods and services, or when investors doubt that monetary policy can resist fiscal pressure. Pakistan’s 2024 Article IV report says earlier fiscal and monetary stimulus intended to lift activity did not produce durable growth; domestic demand exceeded sustainable capacity, contributing to inflation and reserve depletion. The IMF also argues that reducing fiscal dominance can strengthen monetary transmission.
The key question is how a deficit is financed and whether policy can keep demand and inflation expectations in check—not simply how much debt exists. If financing needs are large and monetary policy is perceived as accommodating them, the inflation channel can become stronger. If policy credibility is maintained and borrowing is managed sustainably, a high debt stock does not mechanically translate into a particular inflation rate.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchInflation can lower the measured debt ratio without making households better off
When prices rise, nominal GDP can grow, reducing the debt-to-GDP ratio if the debt stock does not rise as quickly. The SBP estimated that inflation lowered Pakistan’s public-debt-to-GDP ratio by 2.5 percentage points in FY2025, compared with 13.6 percentage points in FY2024. This is an accounting contribution to the ratio, not a net benefit: inflation reduces purchasing power and can put pressure on yields, exchange rates, indexed obligations, or future borrowing costs.
How does government borrowing affect interest rates in Pakistan?
Three figures are easy to confuse: the debt stock is the amount outstanding; markup expenditure is the government’s interest bill over a period; and the SBP policy rate is a monetary-policy instrument aimed at inflation and economic conditions. The public-debt total does not mechanically set the policy rate.
Government financing needs can nevertheless complicate interest-rate decisions. Heavy borrowing competes with other borrowers for domestic funds, while market yields affect the price of new government borrowing and debt that must be refinanced. The rate on existing debt does not all change at once: the timing depends on maturity and whether the instrument has a fixed or floating return.
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Why debt instruments reprice at different speeds
The Ministry of Finance lists short-term Treasury bills, longer-term Pakistan Investment Bonds (PIBs), including fixed- and floating-rate forms, and Government Ijara Sukuk. Floating-rate PIB profit rates are linked to reference yields such as three- or six-month Treasury bills. A rise in market yields can therefore feed into the budget more quickly for short-term or floating-rate borrowing, while fixed-rate debt generally retains its coupon until maturity. Refinancing is the point at which market rates can affect the cost of fixed-rate debt.
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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →As of March 2025, domestic debt had an average time to maturity of 3.5 years and external debt 6.2 years; fixed-rate debt represented 19.0 percent of government securities. These Ministry of Finance measures describe maturity and the composition of government securities at that date, not a forecast of when every obligation will reprice.
In its May 2026 review, the IMF called for appropriately tight monetary policy to anchor inflation expectations. That guidance concerns the policy response to inflation risks; it does not mean the debt total alone determines the SBP rate.
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Why does rupee depreciation make external debt more expensive?
When the rupee loses value against the currency in which an external obligation is owed, the same foreign-currency principal or interest payment costs more rupees. That can increase the government’s financing burden. Depreciation can also raise the domestic price of imports, adding a potential pass-through channel to inflation.
At end-March 2025, external debt was 32.2 percent of total public debt, down from 36.7 percent in December 2023, according to the Ministry of Finance. A smaller external share reduces the debt stock’s direct exchange-rate exposure, but does not eliminate it. The exchange rate can also affect the rupee value of existing external obligations even when the foreign-currency amount owed is unchanged.
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Debt is only one influence on the rupee. Trade balances, remittances, capital flows, reserve intervention, global dollar conditions, energy prices, and market expectations also matter. The IMF describes exchange-rate flexibility as a shock absorber and as a means of supporting reserve rebuilding. Fiscal slippage, weaker external financing, or reserve stress can contribute to exchange-rate pressure, but a currency movement cannot be attributed to public debt alone.
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Which debt features make the risks larger or smaller?
| Feature | Why it matters | Pakistan figure and date |
|---|---|---|
| Domestic versus external currency | External obligations create direct rupee valuation and foreign-currency repayment exposure; domestic borrowing does not carry that same direct conversion risk. | External debt was 32.2% of total public debt at end-March 2025. |
| Short versus longer maturity | Shorter maturities bring rollover and refinancing needs sooner. | Average time to maturity at March 2025: 3.5 years for domestic debt and 6.2 years for external debt. |
| Fixed versus floating return | Fixed rates provide greater near-term coupon predictability; floating rates linked to market yields can reprice as reference rates move. | Fixed-rate debt was 19.0% of government securities at March 2025; floating-rate PIBs are linked to reference yields such as three- or six-month Treasury bills. |
| Debt stock versus servicing burden | The stock is principal outstanding; markup expense is the recurring budget cost that must be financed alongside other spending. | Markup expenditure was Rs 6,439 billion in July–March FY2025, against a full-year FY2025 budget estimate of Rs 9,775 billion. |
These indicators are not interchangeable. A large debt stock with longer maturities and predictable rates presents a different near-term budget challenge from debt that must be rolled over quickly or reprices with market yields. Likewise, a high external share makes exchange-rate movements more consequential for the rupee value of debt service.
How should the latest debt and inflation outlook be read?
The IMF’s May 8, 2026 review projected FY2026 average inflation of 7.2 percent and end-period inflation of 11.5 percent. It also projected general-government debt, excluding IMF obligations, at 67.5 percent of GDP. These are projections, not completed-FY2026 observations. The IMF figure uses a general-government definition and excludes IMF obligations, so it is not directly interchangeable with the SBP’s 70.8 percent public-debt ratio at end-June 2025.
For a current policy-rate reading, exchange-rate quote, or completed-year debt figure, use the latest release from the relevant authority and check its date and definition. The figures above establish the reported debt composition through March 2025, the SBP debt ratio through June 2025, and IMF projections published in May 2026; they are not live October 2026 market readings.
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