Unfunded Debt

Unfunded debt is the category used by the State Bank of Pakistan (SBP) and Pakistan's Ministry of Finance for federal government borrowing that is raised directly from the public through non-marketable savings products rather than through tradable securities. It consists mainly of deposits and certificates sold under the National Savings Schemes, plus smaller items such as Postal Life Insurance and the General Provident Fund. It is one of the three categories of Pakistan's domestic debt, alongside permanent debt and floating debt.

The term has a longer history in public finance. In eighteenth- and nineteenth-century Britain, "unfunded" debt meant borrowing that had not yet been converted into long-term stock backed by a dedicated revenue fund, and it overlapped with what was called floating debt. Today the phrase is also used in a different sense, especially in the United States, for "unfunded liabilities" such as pension promises with no assets set aside. Pakistan's usage is specific: it describes savings-scheme borrowing that is not financed through the securities market and that savers can usually cash before maturity.

Imagine a town council that, instead of selling bonds to banks, opens a counter at the post office where any resident can lend it money and earn a fixed return. Residents can usually come back and ask for their money early, perhaps with a small penalty. The council never issues anything that can be resold; each saver simply has an account or a certificate in their name.

That counter is what Pakistan's unfunded debt looks like. It is borrowing from ordinary households, pensioners and widows rather than from banks, and it is "unfunded" in the sense that it is not raised through tradable bonds in the market.

SBP's central government debt table lists three items under unfunded debt. Provisional figures for end-August 2026 were:

• Savings schemes, net of prize bonds. About Rs 3.29 trillion, the great majority of the total. Prize bonds are sold through the same channels but are counted under permanent debt instead.
• Postal Life Insurance. About Rs 47 billion of funds held by the government through Pakistan Post's life insurance business.
• General Provident Fund. About Rs 26 billion, reported from the Ministry of Finance's Budget Wing.

Total unfunded debt was about Rs 3.36 trillion, roughly 6% of central government domestic debt of about Rs 58.8 trillion.

The savings schemes are run by the Central Directorate of National Savings (CDNS), which operates under the Ministry of Finance, through its network of National Savings Centres. Products include long-term certificates such as Defence Savings Certificates, income products such as Regular Income Certificates, and schemes aimed at particular groups, such as Behbood Savings Certificates for widows, senior citizens and disabled people and the Pensioners' Benefit Account. CDNS also offers Shariah-compliant products for savers who follow Islamic finance principles.

Profit rates are set by the government and revised periodically, broadly in line with yields on Market Treasury Bills and Pakistan Investment Bonds. Unlike those securities, savings certificates cannot be sold to another investor. The saver's way out is to encash the certificate with CDNS, which is why SBP describes this borrowing as encashable on demand. Profit on most schemes is subject to withholding tax.

Unfunded debt gives the government a source of funds that does not depend on the banking system. It is held mostly by households, so it spreads ownership of public debt beyond banks and gives savers without access to the capital market a government-backed return. For many retirees, these schemes play the role that savings accounts, fixed deposits or government savings bonds such as the US Series E savings bond play elsewhere.

The schemes compete with bank deposits for household savings. When national savings rates are set above bank deposit rates, money moves out of banks; when they lag, inflows slow and the government must borrow more from banks through bills and bonds.

Because certificates can be cashed early, unfunded debt can behave like short-term borrowing even when its stated maturity is long. A sharp change in rates or confidence can trigger large withdrawals, which the government must then replace with other borrowing. Fixed profit rates can also leave the government paying above-market rates for years after interest rates fall, or leave savers with negative real returns when inflation rises.

Economists and international lenders have also argued that administratively set rates weaken the transmission of monetary policy, since a large pool of savings does not respond quickly to the policy rate. Debt managers therefore treat National Savings as one part of a wider debt management strategy for government borrowing, balanced against marketable domestic debt and external debt.

• Central Directorate of National Savings
• State Bank of Pakistan: Central Government Debt