Pakistan’s government has achieved a historic milestone in fiscal management by prepaying Rs 2.6 trillion of its domestic debt ahead of maturity. This unprecedented move signals a shift toward debt discipline, reduced borrowing risk, and potential relief for taxpayers.
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Key Details of the Debt Repayment
Total amount prepaid: Rs 2.6 trillion across commercial and State Bank of Pakistan (SBP) obligations.
SBP debt component: Rs 1,633 billion was retired in just 59 days. This includes Rs 500 billion in June and Rs 1,133 billion in August.
Commercial market portion: Around Rs 1,000 billion of commercial market debt was early‐retired in the first half of fiscal year 2025.
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What This Means for Pakistan’s Economy
Reduced Risk & Improved Debt Profile
By repaying large portions of its short‐term liabilities early, Pakistan has lowered rollover risk—the risk that the government will struggle to refinance debt when it matures.
The average maturity of domestic debt increased from ~2.7 years to ~3.8 years.
Savings and Fiscal Improvement
The early repayments are estimated to have saved Pakistan over Rs 800 billion in interest payments.
The country’s debt‐to‐GDP ratio has improved, falling from about 74% in FY 2022 to around 70% in FY 2025.
Pakistan also posted a current account surplus of approximately $2 billion—its first in about 14 years.
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Why This Is Historic
This is the first time Pakistan has made such large‐scale early repayments of both State Bank and commercial debt in history.
In prior years, heavy borrowing—particularly short‐term borrowing—and high rollover obligations were a major source of financial vulnerability. This move signals a strategic shift.
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Challenges and What’s Next
While the repayment is a positive development, several challenges remain:
Sustaining momentum: Continued repayments and disciplined borrowing will be necessary to ensure the gains are durable.
Growth vs fiscal discipline: Pakistan needs to balance necessary spending on development, infrastructure, social programs while managing debt.
External vulnerabilities: Global inflation, currency depreciation, external borrowing obligations, and foreign exchange reserves remain critical risk factors.
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Conclusion
Repaying Rs 2.6 trillion ahead of schedule is more than just a number—it’s a statement about Pakistan’s intent to manage its debt more prudently, reduce borrowing costs, and improve economic stability. If sustained, this policy could strengthen investor confidence and improve Pakistan’s credit outlook.
