By Qudsia Bano
Pakistan’s struggle to predict interest rate trends is quietly draining its economy. A new analysis shared with this reporter shows that the Pakistan interest rate forecast system lacks proper data models, hurting budget planning, increasing debt costs, and shaking investor confidence.
According to the report, the government continues to depend on rough estimates and judgment-based assumptions when predicting interest rates. This outdated method often leads to serious budgeting errors, higher loan payments, and reduced market trust.
Rising Debt Costs and Budget Miscalculations
Data from the Ministry of Finance reveals that between FY2020–21 and FY2024–25, Pakistan repeatedly underestimated its actual interest payments by 4% to 12%.
The problem was worse in foreign debt, where real costs jumped 44% higher than projected in FY2023–24. These large gaps, the report warns, make fiscal planning unpredictable and weaken the credibility of budget estimates.
Weak Coordination Between Fiscal and Monetary Policies
The study also notes that the lack of systematic forecasting has created a disconnect between fiscal and monetary policies. Without reliable forward-looking models, the Finance Ministry cannot run proper simulations or test how different interest rate trends might affect the economy.
This gap makes it hard for the government to prepare for market shocks or understand the long-term risks of its borrowing decisions.
Pakistan Interest Rate Forecast and Debt Management Challenges
Pakistan’s debt management strategy, the report adds, has often been reactive. Auction decisions for Treasury Bills (T-bills) and Pakistan Investment Bonds (PIBs) are mostly shaped by short-term market movements instead of long-term strategy.
This approach leads to expensive borrowing and poor debt maturity planning.
As a result, important financial documents like the Medium-Term Debt Strategy (MTDS) and the Statement of Fiscal Risks lose reliability, since both depend heavily on accurate forecasts and data analysis.
Policy Rate Cuts and Their Long-Term Impact
A major change came in September 2024, when the central bank reduced the policy rate from 22% to 17.5%. This move encouraged the government to issue more long-term debt like PIBs and Ijarah Sukuk. By May 2025, the rate dropped even further to 11%, helping extend the average maturity of Pakistan’s debt.
But the report warns that this may have been a risky move, as the country still faces uncertainty about future interest rate trends.
Even though investors showed strong interest in short-term T-bills during that period, the government chose to reject extra bids and instead focus on long-term borrowing.
According to data from the State Bank of Pakistan (SBP), this decision was based on market expectations about where interest rates were headed and the shape of the yield curve.
Need for a Modern Data-Driven Forecasting Model
The report ends with a clear message: Pakistan urgently needs a modern, data-backed model for forecasting interest rates and yield curves.
Such a system would help policymakers make smarter, evidence-based decisions about debt and risk management—essential for keeping the economy stable.
Author Profile
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Qudsia Bano is a financial correspondent focused on Pakistan's fiscal health.
Her reporting, driven by SBP data, tracks the country's vital foreign exchange reserves. Bano’s work highlights the central bank's success in stabilizing reserves near the $19-20 billion range, underscoring its crucial effort to maintain exchange rate stability.
