Zahid Hussain highlights Pakistan’s precarious debt position and urges urgent fiscal reforms

KARACHI
In an address to the business community, Mian Zahid Hussain, President Pakistan Businessmen and Intellectuals Forum & All Karachi Industrial Alliance, Chairman National Business Group Pakistan, Chairman Policy Advisory Board FPCCI, and Former Provincial Minister Information Technology, underscored the critical state of the nation’s sovereign debt and the need for immediate and comprehensive policy actions to avert a potential crisis.
According to the latest data as of June 2025, Pakistan’s Total Debt and Liabilities have reached approximately PKR 94.2 trillion, or $331.9 billion. Mr. Hussain noted that this figure is the most holistic measure of the country’s financial obligations and is a stark reminder of the challenges ahead. While the government has succeeded in slowing the rate of debt accumulation and the Gross Public Debt-to-GDP ratio has declined to around 70 percent from a high of 77 percent in fiscal year 2020, the overall debt stock remains at a historically high level.
The structure of Pakistan’s debt has undergone a significant shift, with a growing reliance on domestic borrowing. Government Domestic Debt has surged to PKR 54.47 trillion by June 2025, a 15.5 percent increase over the previous fiscal year. This reliance on internal borrowing is a direct consequence of the government’s limited access to external funding. Concurrently, Pakistan’s Total External Debt and Liabilities stood at PKR 38.3 trillion, which, while increasing in dollar terms, now accounts for a smaller share of the total debt at 32 percent.
Mr. Hussain emphasized that the most alarming aspect of the debt situation is its impact on the federal budget. The debt servicing allocation for the federal budget for fiscal year 2026 is a staggering PKR 8.207 trillion, consuming nearly half of the total budget outlay of PKR 17.573 trillion. This massive expenditure directly curtails the government’s ability to invest in essential sectors like education, healthcare, and infrastructure, perpetuating a cycle of low productivity and economic stagnation.
The country faces a particularly acute challenge in fiscal year 2026, with a projected $26 billion in foreign debt servicing requirements. The timely rollover of commercial and cash-deposit loans from key bilateral partners like China, Saudi Arabia, and the UAE has become a critical geopolitical lifeline, as Pakistan lacks the foreign reserves to meet these obligations on its own.
Mian Zahid Hussain called for a decisive, multi-pronged approach to address the root causes of Pakistan’s debt problem. He recommended accelerated efforts to broaden the tax base and enhance tax administration to reduce reliance on borrowing.