ISLAMABAD: Pakistan’s interest payments on domestic and external debt are estimated to reach Rs8 trillion in the current fiscal year, exceeding both defence and development spending and leaving the federal government with limited resources for other expenditures.
The rising cost of debt servicing is putting increasing pressure on the country’s fiscal position, as interest payments consume a substantial share of federal tax and non-tax revenues. The growing burden is largely linked to the rising stock of public debt and the cost of servicing domestic and external borrowing.
Interest payments are expected to remain high over the medium term, restricting the government’s ability to allocate resources to development projects and other public services. Projections suggest that annual interest payments could reach Rs10 trillion by fiscal year 2030-31.
After meeting its debt-servicing obligations, the federal government is projected to have only around Rs3 trillion left for other expenditures, highlighting the limited fiscal space available for running government operations and financing public services.
The rising debt burden poses a serious challenge to Pakistan’s fiscal sustainability, as an increasing share of national resources is being diverted towards interest payments instead of development and other essential spending.
The government is also seeking to reduce the fiscal deficit with the help of provincial governments, but persistently high debt-servicing costs are expected to remain a major constraint on fiscal management.