Moaaz Manzoor

Pakistan’s domestic debt stock is expected to increase further during fiscal year 2025-26, with central government borrowing from internal sources projected to rise by 10.7 percent, pushing the total to more than Rs60 trillion amid continued financing needs.

According to the Pakistan Macroeconomic Outlook FY2026 prepared by the Research and Publications Department of the Institute of Cost and Management Accountants of Pakistan (ICMA), central government domestic debt is forecast to reach Rs60,312.3 billion in FY26, up from Rs54,471.5 billion recorded in FY25.

The anticipated rise highlights the government’s ongoing reliance on local borrowing to meet financing requirements and service existing obligations. Domestic debt has steadily expanded in recent years as authorities turn to internal markets to cover funding gaps and maintain liquidity.

The report notes that borrowing trends in FY25 already reflected significant dependence on domestic sources. As of June 2025, central government domestic debt stood at Rs54.47 trillion, while external debt amounted to Rs23.41 trillion. The higher share of domestic obligations underscores the increasing role of local instruments in public financing.

For FY26, ICMA expects domestic borrowing to remain the primary driver of overall debt growth. By contrast, external debt is projected to decline slightly by 1.3 percent to around Rs23,104.0 billion. This shift suggests a greater emphasis on internal funding channels rather than foreign sources.

Recent figures indicate that the upward trajectory has already continued into the current fiscal year. As of October 2025, total central debt reached Rs76,979.5 billion, with domestic liabilities accounting for the bulk of the increase. The data illustrate that borrowing within the country remains the dominant component of the debt portfolio.

ICMA attributes the persistent expansion of domestic debt to structural fiscal pressures and moderate economic growth. Governments typically rely on treasury bills, bonds, and other local instruments to finance expenditures and manage repayments, particularly when external borrowing conditions are constrained or less favourable.

While domestic financing provides flexibility and reduces exposure to exchange rate fluctuations, it also carries implications for the broader financial system. Heavy government borrowing from local markets can influence liquidity conditions and shape the allocation of credit within the economy. Sustained increases may require careful management to maintain stability and confidence.

The report suggests that managing the maturity profile of domestic obligations will be important in the period ahead. Extending maturities and utilising longer-term instruments could help reduce refinancing risks and create a more predictable repayment structure. Such measures can ease short-term rollover pressures and contribute to smoother debt management.

ICMA’s projection indicates that domestic debt will remain a key feature of Pakistan’s fiscal landscape in FY26. Crossing the Rs60 trillion mark underscores both the scale of the government’s financing needs and the growing importance of internal capital markets in supporting public sector operations.

As the year progresses, domestic borrowing will increasingly shape the country’s overall debt dynamics and fiscal sustainability.

Credit: INP-WealthPk