Government borrowing from banks dropped 84 percent in the first seven and a half months of the current fiscal year, totaling Rs658 billion compared to Rs4.044 trillion in the same period last year, according to data released by the State Bank of Pakistan.Â
The significant decline follows a reduction in the policy rate from 22 percent to 12 percent, impacting banks’ profits from risk-free government securities.
Despite the lower borrowing, the government faces fiscal pressure due to a widening tax shortfall, which reached Rs606 billion in the first eight months of FY25.Â
With revenue collections falling behind projections, there is concern that borrowing could increase towards the end of the fiscal year to cover expenses. The government had set a revenue target of Rs12.97 trillion for the year but is expected to miss it.
The decline in bank borrowing comes as an International Monetary Fund (IMF) delegation reviews Pakistan’s macroeconomic indicators. Finance Minister Mohammad Aurangzeb has expressed confidence in securing the next $1.1 billion tranche from the IMF’s $7 billion loan program. However, the need to contain the fiscal deficit remains a key challenge.
In previous years, bank borrowing was significantly higher, reaching Rs8.591 trillion in FY24, Rs3.716 trillion in FY23, and Rs3.448 trillion in FY22.Â
The government has earmarked Rs8.736 trillion for domestic debt servicing and Rs1.038 trillion for foreign debt servicing in FY25, totaling Rs9.774 trillion. While lower borrowing may help keep the fiscal deficit within IMF-prescribed limits, the shortfall in tax revenues continues to pose a major risk to fiscal stability.
