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ISLAMABAD: The International Monetary Fund has issued fresh guidelines on Pakistan’s public debt management and warned that the country continues to breach its legal debt ceiling.

The IMF highlighted that Pakistan’s public debt has reached 72.8 percent of GDP against the statutory limit of 60 percent set under domestic fiscal responsibility laws.

The global lender noted persistent economic pressures keeping debt levels elevated. It projected the ratio to remain above 67 percent in the next financial year.

Finance Ministry officials acknowledged the concerns while reiterating the government’s long-term target to bring debt-to-GDP down to 55.7 percent by 2034.

The IMF assessment forms part of ongoing engagement with Pakistani authorities on macroeconomic stability and fiscal consolidation.

**Official Position** IMF staff emphasised the need for urgent corrective measures. The organisation recommended comprehensive tax reforms, significant cuts in government expenditure, and decisive action to eliminate losses and circular debt in the power and gas sectors.

A senior official associated with economic reporting in Islamabad stated that the IMF has linked sustained high debt to risks of macroeconomic instability if not addressed promptly.

The government has outlined a medium-term debt reduction strategy focusing on revenue enhancement and expenditure rationalisation.

**Key Figures and Projections** Pakistan’s total public debt currently stands at levels where interest payments consume a large portion of the federal budget. The debt-to-GDP ratio of 72.8 percent marks a clear deviation from the Fiscal Responsibility and Debt Limitation Act targets.

The IMF forecasts the ratio to stay over 67 percent in FY27. In contrast, the government aims for gradual reduction to 55.7 percent by 2034 through consistent primary surpluses and higher economic growth.

Circular debt in the energy sector remains a major contributor to fiscal stress. Power sector losses and subsidies continue to add to government liabilities despite repeated reform pledges.

Tax-to-GDP ratio hovers around 10-11 percent, significantly below regional peers and potential. Non-tax revenue streams have shown volatility in recent years.

**Background Context** Pakistan has faced repeated debt sustainability challenges over the past decade. Successive governments sought IMF support through multiple programmes, with the latest extended arrangement focusing on fiscal discipline and structural reforms.

The Fiscal Responsibility and Debt Limitation Act 2005 originally set a 60 percent debt-to-GDP ceiling. Repeated breaches have prompted amendments and policy discussions in the National Assembly.

External debt servicing requirements, rupee depreciation episodes, and high domestic borrowing rates have compounded the burden. Public debt stock includes both domestic and external components, with domestic debt forming the larger share.

**Reactions and Impact** Financial markets reacted cautiously to the IMF statement. Bond yields and currency trading showed limited immediate volatility as the assessment aligns with existing expectations.

Economists and fiscal experts called for accelerated implementation of tax base broadening measures. They stressed reducing exemptions and improving compliance to generate additional revenue without raising rates.

Business community representatives expressed concerns over potential new austerity measures. They urged protection of growth-oriented sectors while implementing reforms.

Provincial governments are expected to play a larger role in revenue collection, particularly through services tax and agricultural income taxation.

**Strategic Implications** The IMF guidance places increased pressure on the Ministry of Finance ahead of the upcoming federal budget. Authorities must balance debt reduction targets with spending needs in infrastructure, social protection, and defence.

Successful implementation of recommended reforms could unlock further international financing and improve credit ratings. Failure to arrest the debt trajectory risks higher borrowing costs and reduced fiscal space.

Pakistan’s debt dynamics remain sensitive to global interest rates, commodity prices, and exchange rate movements. Stronger GDP growth above 5 percent annually would provide meaningful relief to the ratio.

Looking ahead, the coming months will prove critical as the government finalises its budget strategy and engages with IMF teams on programme reviews. Progress on tax reforms, energy sector viability, and expenditure control will determine the pace of debt stabilisation in the medium term.