Govt Clears Rs1.13tr More SBP Debt

ISLAMABAD: The government has repaid another Rs1.133 trillion to the State Bank of Pakistan (SBP), reducing its liabilities to the lowest level in recent years. Officials said the repayment was facilitated by record profits posted by the central bank, driven by historically high interest rates.

According to the Ministry of Finance, the Debt Management Office executed the repayment on Aug 29, following an earlier Rs500 billion clearance on June 30. With these two transactions, the government has paid back Rs1.633 trillion in just 59 days. Over the past 12 months, early repayments have touched Rs2.6tr — a level described by the ministry as “unprecedented in Pakistan’s fiscal history.”

The ministry said the repayments reflect a shift from past practices, when borrowing costs squeezed fiscal space. Under a new “debt discipline” strategy, the government has retired 30 per cent of its SBP borrowings ahead of their 2029 maturity. As a result, central bank liabilities have dropped to Rs3.8tr from Rs5.5tr.

The statement added that early repayment has also improved the debt profile, with the average maturity of domestic debt rising to 3.8 years from 2.7 years in FY24 — the sharpest annual improvement on record, and well above IMF programme targets. Officials said the steps have strengthened fiscal resilience and secured about Rs800bn in savings due to falling interest rates.

Read More

China a Model for Poverty Alleviation: Shehbaz

Boost from record revenues

Authorities attributed the repayment capacity to surging revenues, which rose by 186pc in FY2024-25. The bulk came from the SBP’s record surplus profits of Rs2.5tr, which were channelled back into debt retirement.

Looking ahead, the Medium-Term Debt Management Strategy outlines plans to expand long-term instruments, including fixed-rate and zero-coupon bonds. A recently launched two-year zero-coupon bond has already drawn strong investor demand, the ministry noted.

Debt challenges remain

Despite the progress, the MoF acknowledged that borrowing costs remain a concern. Interest payments absorbed nearly 6pc of GDP in FY2025, with domestic debt carrying an average interest rate of 15.82pc, compared to 4.4pc on external loans.

Officials noted that around 80pc of domestic debt will need to be re-priced by FY2026, reflecting reliance on floating-rate instruments. The trend accelerated in FY2023 when the policy rate hit 22pc and investors preferred five-year floating-rate Pakistan Investment Bonds.

While risks persist, the ministry maintained that its proactive debt retirement strategy has provided much-needed fiscal space and signalled a departure from the heavy borrowing practices of the past.