Pakistan’s Debt Hits Record Levels: Half of Government Revenue Goes to Interest Payments

Pakistan’s debt burden has crossed its legal limits, putting the already-struggling economy under severe pressure. According to a recent report, the country’s debt-to-GDP ratio has surged to 70.7%, surpassing the 56% ceiling set by the Pakistani Parliament.

Debt Rising Beyond Legal Limits

The Karachi-based newspaper Business Recorder reported that Pakistan’s latest Debt Policy Statement 2026 revealed the government’s public debt for fiscal year 2024-25 has exceeded the legal threshold by a significant margin. The debt now stands at 16.8 trillion Pakistani rupees above the authorized limit, equivalent to roughly 14.7% of GDP. Analysts say this highlights the government’s repeated failures in enforcing fiscal discipline.

Structural Flaws in Governance

The report emphasizes that this breach exposes deep structural flaws in Pakistan’s governance, where expenditure occurs first, borrowing comes later, and justifications are crafted after the fact. Often, Parliament is informed about breaches only after limits are exceeded, leaving the executive branch largely unaccountable. Pakistan’s economic model remains consumption-driven, heavily reliant on debt, and largely indifferent to reforms.

Half of Budget Consumed by Debt Repayment

The most immediate impact is that nearly half of the federal budget now goes toward servicing debt, leaving fewer resources for development projects. Public Sector Development Programs (PSDP) have suffered, and the government is forced to impose higher taxes on citizens already burdened by economic hardships.

Debt Undermining Development

Over the past three years, domestic debt servicing has become the biggest driver of government expenditure, squeezing funds available for critical development initiatives and productive investments needed to pull the economy out of debt. Commitments by the finance ministry to the Parliament often appear hollow under these conditions.

Debt-to-GDP Ratio Worsens

While the government admits that the debt-to-GDP ratio worsened in the previous fiscal year, it asserts a commitment to fiscal responsibility and adherence to the Debt Limitation Act. Officials claim they will gradually reduce the fiscal deficit, achieve a primary surplus, and bring public debt to a sustainable level.

Economic Outlook Remains Grim

Early indications for the current fiscal year are also unpromising. The Federal Board of Revenue (FBR) fell PKR 347 billion short of its revenue target between July and January. Meanwhile, the government increasingly relies on financial engineering to mask the true debt burden.

With debt consuming a growing share of government resources, Pakistan faces mounting challenges in reviving economic growth and funding essential development projects.