Pakistan's federal government debt reached Rs81.9 trillion by the end of May 2026, underscoring the deepening interdependence between state borrowing and the domestic financial system.
The figure highlights a structural challenge where the banking sector absorbs a disproportionate share of sovereign paper, limiting capital available for private sector lending.
This dynamic creates a feedback loop that complicates monetary policy efforts to control inflation.
As the government taps domestic markets more aggressively to fund deficits, yields on sovereign instruments tend to rise, pulling liquidity away from corporate borrowers and small enterprises.
The result is a constrained credit environment that can dampen economic growth even as fiscal pressures mount.
The situation in Pakistan mirrors broader trends seen in emerging markets, where fiscal expansion and persistent inflation risks are forcing sovereigns to increase debt issuance.