KARACHI: The central government’s debt declined by 1.7 per cent in August compared to July, as both domestic and external borrowings saw slight adjustments amid ongoing fiscal pressures.

According to the State Bank’s latest data, the total domestic debt stood at Rs54.1 trillion in August, down from Rs54.988tr in July. On a year-on-year basis, domestic debt was still up 11.9pc.

The decline in August was largely attributed to reduced borrowing through Pakistan Investment Bonds (PIBs) and treasury bills. PIBs dropped from Rs35.565tr in July to Rs34.55tr in August, while borrowing via treasury bills declined from Rs8.73tr to Rs8.65tr during the same period.

The total central government debt — including external obligations — fell by Rs780 billion to Rs77.458tr in August, from Rs78.238tr in July. However, external debt rose slightly to Rs23.385tr from Rs23.250tr a month earlier.

A higher share of external debt increases the economy’s exposure to exchange rate fluctuations, making it essential to carefully manage foreign currency borrowings to reduce risk.

In its latest fiscal update, the Ministry of Finance reported that total public debt surged by 13pc to Rs80.6tr in FY25, raising the debt-to-GDP ratio to 70pc from 68pc a year earlier. Rising debt servicing costs continue to strain public finances, with over Rs9tr allocated to interest payments alone in the current fiscal year.

Experts warn that growing debt obligations leave limited fiscal space for development spending. The government remains heavily reliant on both domestic and external borrowing to meet existing liabilities.

Pakistan’s economy has faced persistent challenges since FY23, including climate-related disasters, global commodity shocks, and inflationary pressures.

Published in Dawn, October 7th, 2025