By Qudsia Bano

Pakistan’s public debt, which stood at Rs80.5 trillion by the end of June 2025, could fall below 60 percent of GDP by FY2035 if the government enforces sustained fiscal discipline and coordinated policy reforms, according to an official analysis available with Wealth Pakistan. The report highlights that maintaining a primary surplus of 1.5 percent of GDP could lower the debt-to-GDP ratio by approximately 1.5 percentage points each year, bringing the overall debt level in line with the Fiscal Responsibility and Debt Limitation Act (FRDLA) ceiling by FY2035.

Alternatively, the analysis indicates that even without a primary surplus, the debt ratio could still drop below 60 percent within six years if the average nominal interest rate remains at least three percentage points below nominal GDP growth. For this scenario to materialize, Pakistan would require annual real GDP growth of around 5 percent, inflation close to 8 percent, and a stable real interest rate of roughly 2 percent.
However, in its baseline projection, the report expects Pakistan’s public debt to remain elevated between 83 and 87 percent of GDP by FY2035, based on trend, compound annual growth, and debt identity-based simulations. It warns that without corrective fiscal measures, the debt ratio will continue to exceed the FRDLA threshold, undermining fiscal sustainability and macroeconomic stability.

The analysis underscores that the persistent gap between interest rates and GDP growth, recurring primary fiscal deficits, and exchange rate volatility have historically driven Pakistan’s rising debt trajectory. It calls for a coherent medium-term policy framework in which the Ministry of Finance, the State Bank of Pakistan, and other fiscal institutions operate under mutually consistent targets to stabilize debt dynamics and improve fiscal credibility. According to the report, a combination of sustained real economic growth, prudent external debt management, and aligned monetary policy could bring the debt-to-GDP ratio down to a sustainable range relatively quickly. However, this outcome hinges critically on strong institutional coordination.

It further cautions that in the absence of such coordination, the government will continue to face serious constraints in managing public debt effectively. The document concludes that Pakistan must adopt a sequenced and collaborative reform strategy where fiscal and monetary measures reinforce each other to restore fiscal sustainability and institutional credibility over the medium term.

Credit: INP-WealthPk