ISLAMABAD: Pakistan’s total public debt has climbed sharply over the last decade, rising from 60 percent of GDP in 2016 to 71 percent in 2025, the National Assembly Standing Committee on Finance and Revenues was informed on Thursday. Alarmingly, debt servicing consumed 89 percent of total net federal revenue receipts in FY2025 — though an improvement from the 120 percent recorded in FY2023.
While Japan’s debt-to-GDP ratio is significantly higher at around 200 percent, Pakistan’s situation is far more precarious because its debt servicing obligations place an overwhelming strain on federal revenues. Economists cautioned that, without corrective measures, the debt-to-GDP ratio could rise further to 85 percent by 2035, far exceeding the legal ceiling set under the Fiscal Responsibility and Debt Limitation Act (FRDLA).
Debt Ballooning Despite Fiscal Law
In a detailed presentation at Parliament House, Finance Ministry economists Dr. Waseem and Aizaz Asif told the committee, chaired by Syed Naveed Qamar, that external debt in rupee terms surged from Rs6 trillion in 2016 to Rs26 trillion in 2025. Domestic debt jumped from Rs13.6 trillion to Rs54.5 trillion during the same period.
Consequently, total public debt now stands at 70.8 percent of GDP, compared to 60.1 percent a decade earlier. Debt servicing alone is consuming 89 percent of net federal revenues, leaving just 11 percent for all other federal expenditures — including defence, development projects, salaries, pensions, subsidies, and grants.
Economists noted that while the FRDLA was enacted almost two decades ago to enforce fiscal discipline, successive governments have failed to contain the rise in public debt within legal targets.
Two Strategic Paths to Debt Sustainability
Presenters outlined two strategic policy paths to address debt sustainability:
Primary Surplus Strategy:
If nominal interest rates are equal to nominal GDP growth, maintaining a primary surplus of 1.5 percent could help achieve the FRDLA debt target by FY2035.Growth-Led Strategy:
If the primary balance is zero, ensuring nominal GDP growth remains at least three percentage points above interest rates — supported by 5 percent real GDP growth and a 2 percent real interest rate — would produce similar results.
Both strategies, they emphasized, require tight coordination between the Ministry of Finance, State Bank of Pakistan (SBP), and other financial institutions.
Call for Stronger Debt Management Framework
The Ministry of Finance was urged to establish an in-house, model-based framework for forecasting interest rates and yield curves to improve debt sustainability analysis and medium-term debt strategies. A rule-based monetary policy framework could enhance fiscal predictability, reduce uncertainty, and strengthen investor confidence.
Experts further recommended shifting focus toward lowering external borrowing costs, lengthening maturities, and prioritizing concessional financing over short-term commercial loans. Regular publication of debt-sustainability simulations and contingency plans would help build market trust and policy credibility.
EV Policy 2026–30: Rs100bn Subsidy Approved
In a separate briefing, Secretary for Industries Saif Anjum informed the NA panel about the government’s new Electric Vehicle (EV) Policy for 2026–30. With approval from the International Monetary Fund (IMF), the government has allocated Rs100 billion in subsidies over five years to support EV adoption.
Key measures include:
A subsidy of Rs53 per unit for EV charging stations, reducing tariffs from Rs92 to Rs39 per unit.
Target to save $1 billion annually in oil imports by 2030.
An estimated $450 million in annual health savings through reduced pollution.
Establishment of 3,000 charging stations nationwide by 2030, regulated by National Electric Power Regulatory Authority (Nepra).
An Rs80,000 subsidy on electric motorcycles priced around Rs250,000 to make EVs more affordable for middle-income consumers.
Anjum acknowledged that earlier EV policy targets were not met but said the revised policy includes practical incentives to ensure 30 percent of new vehicle sales are electric by 2030. Currently, Pakistan has more than 76,000 EVs.
IMF Pushback on EV Tax Proposals
Committee Chairman Syed Naveed Qamar observed that while taxes were levied on hybrid vehicles, exemptions were granted to two- and three-wheel EVs. Officials also informed the committee that the IMF has proposed increasing taxes and duties on EVs.
However, the IMF has not accepted Pakistan’s proposal to:
Impose withholding tax based on market value instead of battery size, or
Raise the taxable value threshold from Rs5 million to Rs10 million.
