PAKISTAN’S debt dynamics continue to paint a difficult fiscal picture. The latest State Bank debt bulletin shows that the government had added Rs9.3tr in new debt during the last fiscal year, with the total public debt stock surging to a record Rs80.5tr at the end of June. It means that the government had added a staggering Rs25.4bn every single day.

This relentless rise not only breaches the limits set by the Fiscal Responsibility and Debt Limitation Act, but also undermines the budget as interest payments consume most of the latter.

The SBP data underlines that public debt has increased both in absolute terms and relative to the size of the economy, a combination that would require more borrowings for making debt payments.

The resurgent debt-to-GDP ratio increasing to 70.2pc from 67.8pc in one year should be of concern to policymakers due to multiple reasons. One, the rise in debt underscores the reversal of a trend that saw the ratio dropping significantly to 67.8pc in FY24 from 75.2pc the previous year, in spite of stringent fiscal consolidation under the IMF funding programme. Two, it points to a widening gap between tax and other resources and growing expenditures as reflected in the fiscal deficit despite austerity measures. Three, it indicates the state’s eroding capacity to finance development and future growth.

Given this backdrop of rising debt and shrinking fiscal space, many now doubt the government’s ability to assist the millions affected by the recent floods. With little international support, we face the grim prospect of displaced citizens bearing their losses alone — another reminder that its fiscal profligacy has brought the state to a stage where it is unable to protect Pakistanis when disaster strikes. Indeed, the present floods may not rival the devastation caused by the 2002 deluge. Yet the economic toll of the current disaster is still severe and widespread enough to shave off growth, fan inflation and further strain public finances.

Cotton, rice, sugarcane, vegetables and livestock fodder have been wiped out in parts of Punjab and other areas in the country hit by floods. Tens of thousands of households are displaced, while damaged roads, bridges, irrigation channels and housing will require billions for rehabilitation — resources Pakistan does not have.

The country finds itself constrained by a tight budget and heavy debt obligations, leaving it yet again dependent on external aid. Unfortunately, the muted global response to this year’s devastation suggests that even if help arrives, it will be too little to meet the need.

For the government, the options are bleak: diverting scarce domestic resources — which would require the IMF’s consent — or borrowing more to add to an already high debt mountain. In both scenarios, the flood victims risk becoming collateral damage of successive governments’ fiscal mismanagement.

Published in Dawn, September 15th, 2025