Pakistan’s Central Government Debt dropped by Rs. 430 billion to Rs. 77.46 trillion during the first two months of fiscal year 2026, according to new data released by the State Bank of Pakistan (SBP) on Monday.
The decline marks a rare month-on-month reduction in government borrowing, though total debt remains 10.1% higher year-on-year. The contraction reflects stronger fiscal management and efforts to reduce rollover and refinancing pressures.
Data showed that domestic debt fell 0.73% to Rs. 54.1 trillion in July–August FY26. Despite the monthly drop, it was still 11.9% higher compared to the same period last year. On a monthly basis, domestic obligations declined by 1.7%, suggesting an easing in short-term borrowing.
Meanwhile, external debt decreased slightly by 0.13% to Rs. 23.4 trillion over the same period. However, it remained 6.2% higher year-on-year and 0.6% up month-on-month, reflecting limited foreign inflows and exchange rate adjustments.
The SBP report noted that the government repaid Rs. 2.6 trillion early to the central bank and domestic commercial banks, helping to reduce overall Central Government Debt exposure. In addition, the SBP transferred Rs. 2.4 trillion in profits to the federal government, providing extra fiscal space and improving liquidity conditions.
Pakistan also repaid its $500 million Eurobond on schedule, reinforcing its commitment to timely debt servicing. This move contributed to a sharp fall in the country’s sovereign default risk, which has significantly improved over the past year.
According to Khurram Schehzad, adviser to the finance minister, Pakistan has recorded one of the sharpest drops in default risk among emerging markets. He noted that Pakistan now ranks second-best globally, behind only Turkiye, in reducing credit risk.
Bloomberg data on Credit Default Swaps (CDS) shows Pakistan’s default probability has declined by 2,200 basis points in the past 15 months, with consistent quarterly improvements. Analysts say this reflects growing investor confidence and stronger debt management policies, signaling gradual stabilization in Central Government Debt dynamics.
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