Pakistan Plans Rs6.046 Trillion Domestic Borrowing as Government Shifts Away from Short-Term Debt

Pakistan’s federal government plans to raise Rs6.046 trillion through net domestic borrowing during the fiscal year 2026-27, while shifting its financing strategy away from short-term debt towards medium- and long-term instruments.

The government’s new borrowing strategy aims to reduce refinancing risks, extend the average maturity of public debt and improve the overall structure of its financing portfolio.

According to the Ministry of Finance’s Annual Borrowing Plan for FY2026-27, the government intends to increase its reliance on Pakistan Investment Bonds (PIBs), fixed-rate securities and Islamic financing instruments, while reducing the net issuance of short-term Market Treasury Bills.

The plan comes as Pakistan faces substantial debt repayment obligations and financing requirements during the current fiscal year.

The government has projected gross financing needs of Rs28.647 trillion for FY2026-27, equivalent to approximately 20% of the country’s gross domestic product.

Government Plans Rs6.046 Trillion in Net Domestic Borrowing

Under the Annual Borrowing Plan, the government intends to raise Rs6.046 trillion through net domestic borrowing during FY2026-27.

The financing plan also includes Rs813 billion in net external financing and an estimated Rs161 billion from privatisation proceeds.

The figures form part of the government’s strategy to finance its projected fiscal deficit and manage the repayment of maturing debt.

The planned financing structure is as follows:

These amounts are intended to finance the federal fiscal deficit rather than represent the government’s entire borrowing requirement.

The distinction matters because Pakistan must also arrange funds to repay existing loans as they mature.

Why Is Pakistan Moving Away from Short-Term Debt?

One of the central objectives of the government’s borrowing strategy is to reduce dependence on short-term Treasury Bills.

Treasury Bills are short-term government securities that generally mature within one year. Although they can provide quick access to financing, frequent maturities require the government to refinance substantial amounts of debt.

If market interest rates increase when these securities mature, the government may have to refinance its obligations at higher borrowing costs.

Repeated refinancing also creates uncertainty because the government must regularly secure fresh financing to replace maturing debt.

The government therefore wants to replace a portion of its short-term borrowing with securities carrying longer repayment periods.

Under the FY2026-27 plan, Market Treasury Bills are expected to record negative net issuance of approximately Rs2.592 trillion.

Negative net issuance means that the government intends to allow more Treasury Bills to mature than it issues on a net basis.

This does not mean that all short-term Treasury Bills will disappear. Instead, the government intends to reduce its outstanding reliance on this category while increasing borrowing through longer-term instruments.

Pakistan Plans Rs4.58 Trillion Through Investment Bonds

Pakistan Investment Bonds are expected to become a major component of the government’s domestic financing strategy.

The Annual Borrowing Plan envisages net issuance of approximately Rs4.58 trillion in PIBs during FY2026-27.

The government also wants fixed-rate PIBs to account for more than 50% of new issuances.

Fixed-rate bonds provide a predetermined return over their specified maturity period. This can help the government manage interest-rate uncertainty compared with financing arrangements whose returns change with market rates.

The government is also considering introducing a new 20-year fixed-coupon bond after consultations with relevant stakeholders.

Another proposed change involves replacing the existing 10-year zero-coupon floating-rate instrument with a 10-year fixed-rate instrument.

These measures are intended to diversify the government’s debt portfolio and increase the share of financing with longer and more predictable repayment structures.

Government Expands Its Reliance on Sukuk Financing

Islamic financing instruments are another important part of Pakistan’s domestic borrowing strategy.

The government plans to raise approximately Rs3.785 trillion through Government Ijara Sukuk, Bai Muajjal and short-term Sukuk-related instruments.

The broader borrowing plan also envisages gross Sukuk issuance of approximately Rs6.6 trillion during FY2026-27.

The difference between the Rs3.785 trillion and Rs6.6 trillion figures is important.

The Rs3.785 trillion amount relates to planned net issuance within the relevant domestic financing categories, while the Rs6.6 trillion figure represents the broader gross issuance target. Gross issuance includes securities issued to meet financing requirements and refinance maturing instruments.

The government has also introduced additional Sukuk structures, including Hybrid Sukuk and short-term instruments with three- and six-month tenors.

Expanding the Sukuk market could help attract investors seeking Shariah-compliant government securities.

It may also provide the government with an alternative source of financing beyond conventional Treasury Bills and investment bonds.

Government Faces Rs28.647 Trillion in Financing Requirements

Pakistan’s borrowing strategy reflects the scale of its overall financing requirements.

The government has projected gross financing needs of Rs28.647 trillion for FY2026-27.

This amount includes the financing required for the federal fiscal deficit as well as the repayment of existing domestic and external debt.

The major components are:

The projected financing requirement is equivalent to approximately 20% of GDP.

Debt maturities represent a major part of this requirement because Pakistan must repay or refinance existing obligations while arranging funds for its budget deficit.

The government therefore needs a financing strategy that addresses both new borrowing and the repayment schedule of existing debt.

Pakistan Has Rs17.096 Trillion in Domestic Debt Maturities

Domestic debt repayments account for a significant portion of Pakistan’s FY2026-27 financing requirements.

According to the borrowing plan, domestic debt maturities are projected at approximately Rs17.096 trillion.

External debt repayments are estimated at Rs4.531 trillion.

A substantial portion of domestic maturities consists of Treasury Bills.

The government has estimated Treasury Bill maturities at approximately Rs11.1 trillion during the fiscal year.

Pakistan Investment Bonds and Government Ijara Sukuk also account for significant repayment obligations.

This concentration of maturing debt explains why the government wants to extend the maturity profile of its domestic borrowing.

Instead of repeatedly refinancing large amounts of short-term debt, the government aims to spread repayments over longer periods.

Pakistan’s Public Debt Reaches Rs86.7 Trillion

The government’s borrowing strategy comes amid a substantial increase in Pakistan’s public debt.

According to the Ministry of Finance, total public debt reached Rs86.7 trillion at the end of June 2026.

The debt stock comprised:

Public debt increased by approximately 76% between June 2022 and June 2026, according to the ministry’s figures.

Domestic debt represents the larger portion of the total.

This makes the structure of local borrowing particularly important for Pakistan’s debt-management strategy.

The government must consider not only how much it borrows but also the interest-rate structure, currency exposure and maturity periods associated with those obligations.

Government Wants to Extend Average Debt Maturity to 4.2 Years

Another objective of the borrowing strategy is to increase the average maturity of Pakistan’s debt portfolio.

The average maturity of public debt increased from approximately 2.7 years in June 2024 to 3.8 years in June 2026.

The government has set a target of extending it to 4.2 years by FY2028.

A longer average maturity means that, on average, debt repayments are spread over a longer period.

This can reduce the frequency with which the government needs to refinance its obligations.

However, longer-term borrowing does not automatically guarantee lower interest costs. The government must also consider the rates investors demand for holding securities over extended periods.

The objective is therefore to balance borrowing costs with refinancing risks and the stability of the overall debt portfolio.

Government Also Plans More International Borrowing

Although the main focus of the latest strategy is domestic borrowing, Pakistan is also planning to use international capital markets.

The government intends to raise more than $2 billion through Eurobonds or international Sukuk during FY2026-27, subject to suitable market conditions.

Pakistan has already raised $3 billion through a Eurobond issuance in September 2026.

The government also plans to refinance existing foreign commercial bank financing and explore new facilities where appropriate terms and pricing are available.

Net external financing is projected at Rs813 billion, equivalent to approximately $2.804 billion under the government’s assumed exchange rate.

Multilateral lenders are expected to remain an important source of external financing.

The government also intends to encourage non-resident investment through Naya Pakistan Certificates and government securities.

These measures are intended to diversify financing sources and reduce dependence on individual categories of external borrowing.

What Does the New Borrowing Strategy Mean for Pakistan’s Economy?

The shift towards longer-term borrowing could have several implications for the country’s financial position.

Reduced Refinancing Pressure

Replacing some short-term Treasury Bills with longer-term bonds could reduce the frequency of debt maturities.

This would give the government more time to plan repayments and arrange financing.

Greater Interest-Rate Predictability

Increasing fixed-rate borrowing could make a larger portion of the government’s interest obligations more predictable.

However, the government may have to pay a different rate for longer-term financing depending on investor demand and market conditions.

Development of the Domestic Bond Market

Greater issuance of PIBs, Sukuk and longer-term securities could expand Pakistan’s domestic debt market.

It may also provide banks, insurance companies, pension funds and other institutional investors with additional investment options.

Greater Role for Islamic Finance

The planned expansion of Sukuk could increase the availability of Shariah-compliant government investment instruments.

This may help attract a broader range of domestic investors.

Continued Pressure from Debt Servicing

Despite the change in borrowing structure, Pakistan will continue to face substantial repayment and interest obligations.

Extending maturities changes when debt must be repaid; it does not eliminate the underlying liabilities.

The long-term effectiveness of the strategy will depend on fiscal discipline, economic growth and the government’s ability to manage its borrowing costs.

What Happens Next?

The government will implement its borrowing strategy through auctions and financing operations during FY2026-27.

The Ministry of Finance and relevant debt-management authorities will determine the timing and volume of securities offered to investors.

The State Bank of Pakistan and Pakistan Stock Exchange also publish information related to government securities auctions and Sukuk instruments.

The government will need to maintain investor confidence to attract sufficient demand for longer-term securities.

Market interest rates, inflation expectations, banking-sector liquidity and overall economic conditions will influence the success and cost of the borrowing programme.

The proposed 20-year fixed-coupon bond and changes to existing Sukuk and bond structures will also be important developments to watch.

Frequently Asked Questions

How much does Pakistan plan to borrow domestically in FY2026-27?

The government plans to raise Rs6.046 trillion through net domestic borrowing during FY2026-27.

Why is Pakistan reducing short-term borrowing?

The government wants to reduce refinancing risks, avoid frequent debt maturities and extend the average maturity of its public debt portfolio.

How much does Pakistan plan to raise through Pakistan Investment Bonds?

The government has projected net PIB issuance of approximately Rs4.58 trillion during FY2026-27.

How much Sukuk does the government plan to issue?

The government plans gross Sukuk issuance of approximately Rs6.6 trillion during FY2026-27, while the planned net issuance through relevant Sukuk and Islamic financing categories is approximately Rs3.785 trillion.

What are Pakistan’s total financing requirements for FY2026-27?

The government has projected gross financing needs of Rs28.647 trillion, including the fiscal deficit and debt maturities.

What is Pakistan’s total public debt?

Pakistan’s public debt reached Rs86.7 trillion at the end of June 2026, comprising Rs59.4 trillion in domestic debt and Rs27.3 trillion in external debt.

What is the government’s target for average debt maturity?

The government aims to extend average debt maturity from 3.8 years in June 2026 to 4.2 years by FY2028.

Final Takeaway

Pakistan plans to raise Rs6.046 trillion through net domestic borrowing during FY2026-27 while changing the composition of its debt portfolio.

The government intends to reduce net reliance on short-term Treasury Bills and increase financing through Pakistan Investment Bonds, fixed-rate securities and Sukuk.

The strategy is designed to extend debt maturities and reduce refinancing risks as Pakistan faces Rs28.647 trillion in gross financing needs during the fiscal year.

However, the shift does not eliminate public debt or guarantee lower borrowing costs. Its effectiveness will depend on investor demand, fiscal discipline and the government’s ability to manage repayments over the coming years.