Pakistan finalizes IMF-backed plan to extend debt maturities, boost sustainability

In a significant step toward fulfilling the International Monetary Fund's (IMF) requirements, the Pakistan government has finalized a strategy to extend the average maturity period of both domestic and external debts, senior official sources confirmed on Tuesday.

According to the plan, the average maturity period for domestic debt, currently standing at three years and eight months (44 months), will be extended to 52 months, while the maturity for external debt will be increased from the current 6.1 years (approximately 73 months) to 76 months.

The IMF has set a deadline of 2028 for the implementation of these changes, which are intended to reduce Pakistan’s near-term refinancing pressures. By extending debt maturities, the government aims to lower annual financing requirements and improve debt sustainability over the medium term.

Sources added that a compliance report on these reforms will be shared with the IMF ahead of Pakistan’s next economic review under the ongoing bailout program.

Implementation of the new maturity benchmarks will commence during the current fiscal year, and will form part of a broader fiscal management overhaul.

In addition to the maturity extensions, at least 30% of domestic debt will be structured to meet the IMF’s “Average Time to Refixing” condition, aligning with fixed policy rate instruments and the share of Shariah-compliant instruments in domestic borrowing will be increased to 20% over the next three years, promoting Islamic finance in the government’s debt portfolio.

Moreover, external debt will be capped to ensure it does not exceed 40% of total public debt, in line with sustainability thresholds.

These reforms reflect Pakistan’s efforts to restore macroeconomic stability and strengthen investor confidence, as the country navigates a challenging fiscal landscape amid IMF oversight.

Pakistan’s central government debt reached PKR 76 trillion at the end of May, according to official figures of the State Bank of Pakistan. This marks an increase of PKR 7.1 trillion over 11 months, up from PKR 68.9 trillion in June 2024.

Of the total, PKR 53.4 trillion is in domestic debt, while PKR 22.8 trillion is external debt. Domestic debt rose from PKR 47.16 trillion in June 2024 to PKR 52.5 trillion in April, accounting for the majority of the year’s overall increase.

As of May, domestic debt accounted for approximately 70.3% of total central government debt, while external debt made up 29.7%.

The data shows that the increase in central government debt over the past year was primarily driven by long-term domestic borrowing, particularly through government bonds and savings instruments.