Floating debt is the short-term part of a government's debt: borrowing that falls due within a year and is normally repaid by borrowing again. It is made up mostly of Treasury bills, and in some countries also of short-term advances from the central bank. The term is used in public finance generally and is one of the three official categories of domestic debt in Pakistan, alongside permanent debt and unfunded debt.
"Floating" here refers to the debt's short life and constant renewal, not to its interest rate. Floating debt should not be confused with floating-rate debt, which is a bond of any maturity whose interest payments reset with a benchmark rate such as KIBOR or SOFR.
Floating debt in plain terms
Picture a shopkeeper who keeps a running tab with a wholesaler. Every month the old tab is settled and a new one opened, so the shop always owes roughly the same amount, but each month's terms depend on what the wholesaler is charging that week. As long as the wholesaler keeps extending credit, everything runs smoothly.
Floating debt is the government's running tab. Bills mature every few weeks and are paid off with money from new bills. It is cheap and flexible, but if lenders become nervous or interest rates jump, the government must refinance a large amount quickly at whatever price the market sets.
Origins of the term
The phrase comes from British public finance. In the eighteenth and nineteenth centuries, the government's long-term "funded" debt, such as consols, was distinguished from short-term borrowing that floated from quarter to quarter, including Exchequer bills and advances from the Bank of England. Treasury bills, first issued in the UK in 1877, became the main form of British floating debt and were later adopted by many other countries.
Governments use floating debt to cover gaps between tax receipts and spending within the year and, increasingly, as a standing source of finance. It also has a monetary role: Treasury bills are the safest short-term asset in most money markets, and central banks use them as collateral in open market operations.
Floating debt in Pakistan
In Pakistan's official statistics, floating debt is the short-term part of central government domestic debt. The State Bank of Pakistan (SBP) table lists four items under it:
- Market Treasury Bills. The bulk of floating debt. MTBs are zero-coupon bills with maturities of up to one year, sold at a discount through SBP auctions.
- MTBs for replenishment of cash. A small separate line which, according to SBP's footnote, includes bills held by the SBP Banking Services Corporation, the National Institute of Banking and Finance and the Pakistan Security Printing Corporation.
- Outright sale of Market Related Treasury Bills (MRTBs) to banks. MRTBs were the instrument through which the government borrowed from SBP; this line, recording any sold on to banks, currently shows zero.
- Bai Muajjal. A short-term Islamic financing line, also at zero in recent tables.
According to provisional SBP figures for end-August 2026, floating debt was about Rs 10.6 trillion, of which about Rs 10.4 trillion was MTBs, out of total central government domestic debt of about Rs 58.8 trillion. Commercial banks are the main buyers, often funding their purchases through repo borrowing from SBP and other banks.
Before 2022, the government could also borrow directly from SBP through MRTBs, a practice that added to reserve money and was criticised as monetary financing. The State Bank of Pakistan (Amendment) Act, 2022 added Section 9C, which bars SBP from extending direct credit to the government, and SBP has said it has made no fresh loans to the government since the Act took effect.
Refinancing risk and debt management
Because floating debt must be rolled over constantly, a country that relies heavily on it faces refinancing risk. If a large volume of bills falls due during a crisis, the government may have to accept much higher yields or turn to emergency sources. A high share of short-term debt also passes changes in the policy rate quickly into the budget, since each new bill is priced at current rates. When monetary policy is tightened to fight inflation, the interest bill on floating debt rises within months.
For these reasons, debt management strategies in Pakistan and elsewhere usually aim to keep floating debt to a moderate share of the total and to lengthen maturities by issuing more long-term Pakistan Investment Bonds and sukuk. The trade-off is cost: short-term borrowing is usually cheaper than long-term borrowing when the yield curve slopes upward, so governments balance savings on interest against the risk of having to refinance at a bad moment.
Floating debt also links the government closely to the banking system. When banks hold large amounts of bills, their liquidity depends on being able to use those bills as collateral, and the government's ability to roll over its debt depends on banks continuing to buy. The broader picture of how a state finances itself is described under government borrowing.