Ahmed Khan Malik

The Sindh government spent Rs26 billion on interest payments in the financial year 2024-25, a significant drain on its limited fiscal space.

This amount, which represents a sizeable portion of the province’s current revenue expenditure, has squeezed the space for priority sectors like health, education, and infrastructure.

Sindh’s current revenue expenditure for FY25 stood at approximately Rs1.66 trillion. This expenditure includes operational costs, salaries, pensions, grants, and interest payments. The interest component alone accounts for roughly 1.6% of the total — an amount that constitutes a non-negligible fiscal burden.

According to the official figures, the province’s development outlay for FY25 — covering the Annual Development Programme, foreign-aided projects, and district development — totalled Rs959 billion, nearly one-third of total expenditure. But the Rs26 billion interest bill eats directly into this capacity. 

“Every rupee spent servicing debt is a rupee less available for schools, hospitals, and roads,” said Shuja Mustafa, a public finance expert. “The trade-off underlines the tightrope provincial governments walk when borrowing costs rise. Rising debt servicing costs reflect broader macroeconomic vulnerabilities.

As Pakistan’s real interest rates climb and domestic borrowing increases, provinces are forced to allocate more resources to recurrent costs,” he said while speaking to Wealth Pakistan. “A report on federal finances highlighted that interest payments alone nearly matched the entire federal budget of FY17, underscoring the gravity of the situation,” Mustafa said.

“Sindh’s challenge is not unique. However, the scale of its interest burden is particularly troubling given its already stretched revenue base and reliance on federal transfers — 62% of its receipts in FY25, according to budget data,” he pointed out. As the province shifted into FY26, it presented a budget totalling Rs3.45 trillion, including similar development and expenditure structures but with modest increases in priority sectors.

“Without corrective measures to reduce debt reliance, interest payments risk undermining Sindh’s development trajectory,” Mustafa warned. The public finance expert called for mobilising the revenue of provinces as strengthening provincial tax and non-tax revenues could reduce dependency on borrowing. “Loans must be calibrated carefully to ensure financed projects yield economic returns that outpace their cost of debt,” he said.

Mustafa said that Sindh’s Rs26 billion interest payment in FY25 highlights a growing fiscal concern. “As debt servicing eats into the province’s budget, difficult choices loom —between sustaining development, servicing debt, or raising taxes. Unless structural reforms are pursued, the interest trap may continue to dampen Sindh’s long-term growth prospects,” he added.

Credit: INP-WealthPk