ISLAMABAD: Pakistan’s domestic debt recorded a significant decline during the first quarter of the fiscal year 2026-27, reversing the upward trend witnessed throughout the previous financial year, as the government stepped up debt repayments and reduced its reliance on domestic borrowing.
According to the latest data released by the State Bank of Pakistan (SBP), the federal government’s total domestic debt fell to Rs57.757 trillion by September 30, 2026, from Rs59.393 trillion at the end of June. The reduction of Rs1.636 trillion within three months reflects a notable shift in the government’s borrowing pattern.
The decline comes amid improving revenue collection and efforts to bring down the fiscal deficit under the country’s ongoing International Monetary Fund (IMF) programme. The government has intensified its fiscal consolidation measures to control expenditure, strengthen public finances and reduce its dependence on borrowing.
Planning, Development and Special Initiatives Minister Ahsan Iqbal recently stated that Pakistan’s fiscal deficit had dropped to 2.6 per cent of gross domestic product (GDP) in FY26, compared with 5.4 per cent in FY25. He described the figure as the lowest fiscal deficit recorded in the country in two decades.
SBP figures also indicate a sharp increase in the government’s repayment of debt owed to scheduled banks. Net retirement of this debt reached Rs1.847 trillion during July-October FY27, compared with just Rs45 billion in the corresponding period of the previous fiscal year. This suggests that the government repaid substantially more than it borrowed from commercial banks during the period.
Borrowing through long-term Pakistan Investment Bonds (PIBs) also registered a considerable decline. The outstanding amount fell by Rs1.756 trillion to Rs33.543 trillion by the end of September, indicating a reversal in the government’s previous borrowing strategy.
The government has traditionally favoured long-term investment instruments over short-term borrowing to manage its financing requirements and reduce refinancing pressures. However, the latest figures show that outstanding liabilities through both long-term and short-term instruments declined during the first quarter.
Similarly, the government’s borrowing through short-term Treasury bills decreased by Rs1.163 trillion, bringing the outstanding amount down to Rs9.640 trillion by September 30. The decline in Treasury bill borrowing suggests that the government has reduced its dependence on short-term domestic financing.
In contrast, the country’s external debt increased in rupee terms during the same period. According to the SBP data, external debt rose from Rs24.2 trillion at the end of June to Rs24.9 trillion by September 30, representing an increase of approximately Rs700 billion.
Despite the quarterly decline, domestic debt continued to show an increase on a year-on-year basis. The government’s total domestic debt rose by Rs4.331 trillion over the 12 months ending September 30, reaching Rs57.757 trillion.
The figures indicate that most of the annual increase occurred during FY26, while the government reversed the trend in the opening quarter of FY27.
The reduction in domestic debt reflects the government’s recent efforts to improve fiscal discipline, limit fresh borrowing and manage existing liabilities. However, the continued rise in external debt highlights the challenges Pakistan faces in managing its overall public debt burden and meeting its financing requirements.
