Many economists believe that debt is not inherently destabilizing, at least theoretically. A country’s debt burden expands only when the nominal interest rate it pays consistently exceeds the pace of its economic growth, even if the government is running a primary surplus.

Hence, on paper, a country can have debt-to-GDP ratio of a 1000% and still pay off its liabilities, keeping the ratio constant. It is only when growth keeps up with a country’s liabilities that the overall burden can remain stable or even shrink. Economists formalize this as:

A(d)=(r-g)×d–p

Change in debt-to-GDP = (interest–growth gap × existing debt ratio) - primary surplus

Advanced economies, though having very high debt-to-GDP ratios continue to borrow due to this very reason. Debt, however, is highly addictive for any economy. As with any addictive substance, a healthy body can live with it, but once the body weakens, even small doses can become lethal. Pakistan never built the strength to manage its debt addiction.

Just recently, Pakistan borrowed approximately Rs 1.3 trillion from commercial banks, pushing its debt-to-GDP ratio higher to around 74 percent of the economy. At the same time, the growth rate, estimated at only 2.68 percent for FY 2024-25, according to the Pakistan Economic Survey, remains far too low to counterbalance the expanding burden.

Under healthier conditions, the economy grows fast enough to dilute the weight of past borrowing over time. That balance never materialized in Pakistan. With borrowing costs still much higher than the growth rate at 11 percent, the ratio continues to rise mechanically, where every additional rupee of debt grows heavier rather than lighter. The burden becomes overbearing as the state embarks on a spending spree financed largely through Treasury bills and bonds rather than through genuine, organic expansion.

To understand why Pakistan fails this simple arithmetic, we must examine the financial forces on both sides of the ratio: why interest remains elevated and why growth refuses to respond. As for interest rates, the SBP has been ultra-hawkish about monetary policy, especially after inflation has resurfaced post the monsoon floods.

CPI, as of October, has risen to 6.24 percent from 5.6........

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