Pakistan’s Finance Minister Muhammad Aurangzeb has called on the World Bank to provide enhanced technical support for the country’s Debt Management Office. Aurangzeb stressed the value of knowledge sharing and capacity building and sought advanced analytical tools and specialised training for Pakistan’s Debt Management Office to improve long-term financial resilience. This push comes as Pakistan’s total public debt remains one of the most pressing economic challenges facing the country.
Background
Finance Minister Muhammad Aurangzeb is in Washington where he will represent Pakistan at the annual International Monetary Fund-World Bank Spring Meetings, which are being held from April 13 to 18. The meetings bring together finance ministers, central bankers, and global policymakers to discuss economic stability and development financing.
Pakistan’s fiscal journey over the past two years has been marked by a careful balancing act seeking international assistance while implementing domestic reforms to reduce the country’s heavy debt burden. The presence of Aurangzeb at such a high-profile forum signals the government’s intent to engage proactively with multilateral partners.
Details: Debt Management Office and World Bank Engagement
In a meeting with World Bank Vice President Jorge Familiar Calderon, the finance minister highlighted the important role of the World Bank Group Treasury in helping Pakistan strengthen its debt management framework. Aurangzeb outlined Pakistan’s diversified financing strategy, referring to instruments including Sukuk and environmental, social, and governance-linked financing, along with efforts to access non-traditional markets.
The adviser of the Ministry of Finance’s Debt Management Office will act as the focal person for coordinating collaborative programmes with the World Bank Group. This institutional arrangement is expected to streamline technical assistance and ensure sustained cooperation between the two sides.
He also pointed to ongoing work to deepen the domestic bond market as part of broader efforts to reinforce Pakistan’s financial system.The bond market reforms are seen as critical to reducing Pakistan’s dependence on short-term borrowing and external financing.
Total Debt on Pakistan in Dollars
Pakistan’s debt figures have drawn global attention. External debt in Pakistan increased to $138 billion in the fourth quarter of 2025, up from $135.7 billion in the third quarter of 2025.When broader liabilities are included, the picture is even more significant.
In dollar terms, Pakistan’s total outstanding external debt and liabilities rose to $138 billion by December 31, 2025, from $136 billion in June.These figures place Pakistan among the most heavily indebted developing economies in South Asia.
Total Public Debt
Pakistan’s total public debt declined from over $286.6 billion in June 2025 to $284.7 billion in November 2025. While still an enormous figure, this decline has been cited by officials as evidence of improving fiscal discipline.
Public debt fell to PKR 79.15 trillion in September 2025 from PKR 80.52 trillion in June 2025, marking Pakistan’s first quarterly decline since December 2019 and described by Finance Adviser Khurram Shahzad as the largest ever in both absolute and percentage terms.
Gross public debt stood at 70.7% of GDP in fiscal year 2025, a level that exceeds the ceiling set under the Fiscal Responsibility and Debt Limitation Act. Officials, however, argue that the trajectory is improving and that reforms are beginning to take hold.
Domestic debt accounted for most of the fall in public debt, shrinking by PKR 1.048 trillion to PKR 53.424 trillion, with long-term domestic debt declining by PKR 692 billion while short-term instruments fell by PKR 356 billion.
Domestic debt reached Rs 55.4 trillion by December 2025, increasing by 1.63% compared to June, with the government relying heavily on Pakistan Investment Bonds, sukuk, and Treasury bills signalling continued dependence on local banking liquidity amid tight external financing conditions.
Pakistan has repaid Rs 3,650 billion ($13.06 billion) in domestic debt ahead of schedule during the last 14 months, a move described by Finance Adviser Khurram Schehzad as reflecting a decisive shift toward fiscal discipline, credibility, and responsible economic management.
Debt Servicing of Pakistan
Debt servicing remains the single largest item in Pakistan’s national budget. Pakistan’s debt servicing accounts for 46.7% of the federal budget in fiscal year 2025–26, amounting to Rs 8.2066 trillion out of a total budget of Rs 17.573 trillion the largest portion of current expenditures.
Domestic debt servicing is set to cost Rs 7.197 trillion, while Rs 1.009 trillion has been earmarked for foreign loan repayments.These numbers leave little fiscal space for spending on education, health, and development.
However, there are early signs of improvement. Total debt servicing fell to Rs 5.2 trillion during July–December FY26, compared to Rs 6.9 trillion in the same period the previous year, with interest payments declining to Rs 3.7 trillion from Rs 5.5 trillion year on year.
Pakistan Budget Surplus
In a notable development, the government posted a budget surplus of Rs 542 billion, or 0.4% of GDP, for July–December FY26, compared to a deficit of Rs 1.5 trillion in the same period last year.This is a significant turnaround and one that Finance Minister Aurangzeb has cited as proof of the government’s commitment to fiscal consolidation.
Pakistan also recorded a $2.0 billion current-account surplus in FY25, its first in 14 years, with officials saying part of the external-debt movement reflects Balance of Payments support including IMF Extended Fund Facility inflows.
First Women Bank Sold to IHC: Pakistan’s First G2G Privatization
Among the most landmark developments in Pakistan’s reform journey is the privatization of First Women Bank Limited (FWBL). The privatisation of the state-owned First Women Bank Limited was formally concluded in October 2025 with the sale of the Government of Pakistan’s entire 82.64% stake to the Abu Dhabi-based International Holding Company (IHC), a major UAE entity, in a transaction reportedly valued at $14.6 million.
This marks the first bank privatisation conducted under the Inter-Governmental Commercial Transactions Act 2022, with FWBL, established in 1989, currently operating 42 branches across Pakistan.
The buyer has been permitted to meet the State Bank’s minimum capital requirement of Rs 10 billion over five years, with IHC to inject an additional Rs 6.8 billion to reach the required threshold.This deal marked the fifth attempt to privatize the bank after failed efforts in 1994, 1996, 2018, and 2021.
IHC’s transformation strategy will focus on creating a modern AI-enabled financial institution by modernising core banking infrastructure, automating processes, and integrating digital channels with advanced analytics and artificial intelligence.
Quotes
Prime Minister Shehbaz Sharif said at the signing ceremony that the deal marks “the beginning of a long and fruitful journey” to revitalise state-owned enterprises and attract foreign investment, calling it “the first drop of rain.”
Finance Minister Aurangzeb, speaking at the World Economic Forum in Davos, stated that the debt-to-GDP ratio has decreased from 78% to 67%, and that the government is working to reduce its expenditures and debt servicing.
Aurangzeb also said Pakistan was confident it would meet its external debt obligations in a timely manner and stressed the need to focus on export-led growth and expanding trade to ensure sustainable economic growth.
Impact
Pakistan’s engagement with the World Bank on debt management capacity carries broad implications. A stronger Debt Management Office means better oversight of borrowing strategy, more disciplined issuance of government securities, and reduced vulnerability to interest rate and currency shocks.
The First Women Bank privatization, meanwhile, sends a positive signal to international investors. Officials noted that the G2G transaction with a UAE-nominated entity owned by IHC is aimed at increasing foreign direct investment inflows and reinforcing investor confidence in Pakistan.
The combined effect of improved debt management infrastructure, early domestic debt retirement, and landmark privatization moves suggests Pakistan is attempting a structural shift from crisis management to long-term fiscal sustainability.
Conclusion
Pakistan stands at a critical juncture. Total public debt remains near $285 billion, and debt servicing continues to consume nearly half of the national budget. Yet the signals emerging from Islamabad early debt repayments, a budget surplus, the first G2G bank privatization, and active engagement with global institutions point toward a government that is serious about reform.
Finance Minister Aurangzeb’s engagement with the World Bank at the Spring Meetings 2026 reinforces this narrative. If the Debt Management Office receives the technical upgrades it is seeking, Pakistan may be better positioned to manage its obligations, diversify its financing, and reduce the fiscal dominance that has constrained growth for decades. The road ahead remains difficult, but the direction, for once, appears intentional.
FAQs
Is Pakistan paying back debt?
Yes. Pakistan has repaid $13.06 billion in domestic debt ahead of schedule over the last 14 months, with Finance Adviser Khurram Schehzad describing it as a landmark achievement reflecting a decisive shift toward fiscal discipline.The government has also posted a budget surplus for the first half of FY2025–26.
Is Pakistan in a debt crisis?
Pakistan has faced severe debt stress in recent years, but conditions are gradually improving. Pakistan’s debt-to-GDP ratio, which was around 74% in FY22, has declined to around 70%, reflecting a broader strengthening of fiscal fundamentals alongside disciplined debt management.The country continues to rely on IMF support and multilateral financing, but the fiscal trajectory has become more positive.
Who took the most debt in Pakistan?
Debt accumulation has occurred across multiple governments. Historically, external borrowing accelerated significantly during CPEC-linked financing in the 2013–2018 period. During that tenure, Pakistan’s external debt increased from $52.4 billion to $75.3 billion, an increase of 144%, mainly due to the China-Pakistan Economic Corridor, for which loans were taken from China.Domestic debt has grown substantially under all recent administrations due to persistent fiscal deficits.
