Govt borrowing from banks surges to Rs2.7 trillion

Pakistan’s Bank Borrowing Surges Despite Revenue Growth and IMF Discipline

Pakistan’s government has sharply increased borrowing from commercial banks, with net borrowing reaching Rs2.7 trillion by early May, despite earlier debt retirement and higher tax revenues. In the first half of FY25, the government retired Rs1.5 trillion in debt, signaling fiscal restraint aimed at meeting IMF-prescribed deficit targets. This marked a major shift from previous years, when Pakistan remained a consistent net borrower. However, the trend reversed in the second half of the fiscal year as liquidity needs surged, forcing the government back to bank financing. Analysts say this renewed borrowing reflects structural fiscal pressures rather than short-term policy choices. More details and continuous coverage are available at https://news360plus.com.

From July to December FY25, the government retired Rs1.541 trillion from commercial banks, a move supported by a massive Rs2.7 trillion liquidity injection from the State Bank of Pakistan (SBP) in the form of profits. This additional liquidity allowed economic managers to temporarily reduce short-term domestic debt and ease pressure on interest payments. According to SBP data, this cautious strategy stood in stark contrast to the Rs3.744 trillion net borrowing recorded during the same period last year. The shift was widely seen as a confidence-building measure for international lenders. For background on Pakistan’s fiscal strategy, see reporting by Dawn News (DoFollow): https://www.dawn.com and BBC News (DoFollow): https://www.bbc.com/news.

However, the fiscal landscape changed rapidly in the second half of FY25. Rising expenditure, weak economic growth, and higher defence-related needs led to renewed borrowing, pushing total net bank borrowing to Rs2.690 trillion between July 1 and May 9. Although this figure remains lower than the Rs6.076 trillion borrowed during the same period of FY24, economists warn the trajectory is concerning. Interest rates at 22% in FY24 made past borrowing extremely costly, while the FY25 budget allocated Rs9.775 trillion for debt servicing, nearly half of the total budget outlay. These pressures continue to constrain fiscal flexibility, as reported in detail on https://news360plus.com.

Looking ahead, bankers and analysts expect the government to rely even more heavily on commercial banks in FY26, citing a growing revenue shortfall and limited prospects for rapid economic growth. The government has already revised its GDP growth target down to 2.6–2.68%, well below the initial projection of 3.6%. Additionally, a reduction in customs duties from 19% to 9.5%—aimed at stimulating industry—will further squeeze revenues. With the fiscal deficit projected at 5.4–5.5% of GDP, risks remain tilted to the upside. Continued analysis and updates on Pakistan’s economy can be found at https://news360plus.com, alongside international perspectives from Dawn News and BBC News.

Govt Borrowing from Banks Surges to Rs2.7 Trillion Despite Higher Revenues

KARACHI: Despite a 10 per cent year-on-year increase in revenue collection, Pakistan’s government borrowed a net Rs1.192 trillion from scheduled banks during the first half of the current fiscal year (1HFY26), compared to a retirement of Rs1.255 trillion in the same period last year. The sharp reversal highlights higher government spending and growing fiscal pressure, even as revenues improved. Detailed economic coverage is available at https://news360plus.com.

The Federal Board of Revenue (FBR) collected Rs6.159 trillion during July–December FY26, missing the assigned target of Rs6.490 trillion by Rs331 billion. Although collections were 10pc higher than last year’s Rs5.618 trillion, the shortfall underscores persistent challenges in meeting fiscal targets. Analysts say this gap has forced the government to rely more heavily on bank borrowing rather than sustainable revenue growth. Similar fiscal trends have been reported by Dawn News (DoFollow): https://www.dawn.com and BBC News (DoFollow): https://www.bbc.com/news.

The situation is further complicated by the fact that the State Bank of Pakistan (SBP) transferred a record net profit of Rs2.5 trillion for FY25 to the federal government, significantly boosting liquidity. Despite this windfall, the government continued to borrow aggressively from banks, indicating structural imbalances in expenditure management. This trend confirms that higher revenues and SBP profits alone are insufficient to offset rising spending needs. More analysis can be read at https://news360plus.com.

Meanwhile, commercial banks remain comfortable investing in government papers due to risk-free high yields, making the financial sector one of the most stable segments of the economy. Last week, treasury bill auction bids reached Rs2.5 trillion, reflecting banks’ strong preference for sovereign instruments. According to the State Bank’s Annual Report 2024–25, “investments in government securities remained the main driver of the banking sector balance sheet.” Continued updates and in-depth reporting are available at https://news360plus.com.