ISLAMABAD: The government has set a target to reduce the debt-to-GDP ratio to 61.5% by the fiscal year 2028. According to the Medium-Term Debt Management Strategy (MTDS) for 2026–28, interest payments on debt are expected to decrease from 7.8% to 4.9% of GDP, and external debt is projected to be reduced to 18% of GDP. The average maturity period for domestic debt is planned to be 4.5 years.
The report forecasts inflation rates at 7.5% for the current fiscal year, 6.8% for the next, and 6.5% for the fiscal year 2028. GDP growth is estimated at 4.2% for the current year, 5.1% for the next, and 5.7% for the fiscal year 2028.
The federal primary surplus is projected to be 1.3% of GDP this year, 1% next year, and remain at 1% through fiscal year 2028. The fiscal deficit is expected to be 5.0% of GDP this year, 4.5% next year, and 3.9% by fiscal year 2028.
The Finance Ministry’s report outlines a plan to reduce the total debt-to-GDP ratio to 66% by the end of the current fiscal year, 64% next year, and 61.5% by fiscal year 2028. Interest payments are expected to decrease from 6.3% of GDP to 5.4% next year and 4.9% by fiscal year 2028. The average maturity period for domestic debt is targeted to be 4.6 years by fiscal year 2028.
To reduce external debt, the government aims to bring it down to 17.9% of GDP by fiscal year 2028. In line with IMF conditions, the average maturity period for debt repayments is planned to be extended.
The report also indicates that the average maturity period for domestic debt is currently 3 years and 8 months, and for external debt, it is 6 years and 1 month. The government plans to increase the average maturity period for domestic debt to 2 years.
The MTDS for 2026–28 also includes plans to increase the share of Shariah-compliant debt instruments from 13% to 20%. As of the end of fiscal year 2025, the country’s total debt stood at Rs78.7 trillion, with domestic debt at Rs53.5 trillion and external debt at Rs25.2 trillion. In dollar terms, the debt amounted to approximately $278 billion, or 68.6% of GDP.
The government is also working on restructuring its debt portfolio, with a focus on lengthening the maturity periods of domestic debt. However, challenges remain due to high gross financing needs and past difficulties in securing external financing.
The Finance Ministry plans to present an implementation report during the upcoming economic review negotiations next month. The MTDS has also been submitted to the IMF for review.
