KARACHI: Pakistan’s government reversed its fiscal course in the second half of FY25, borrowing Rs2.7 trillion from commercial banks by early May after retiring Rs1.5 trillion in the first six months of the year.
From July to December, the government retired Rs1.541 trillion in commercial bank debt, a rare move aimed at keeping the fiscal deficit within the International Monetary Fund’s limits. The retirement marked a shift from previous years, when the government consistently relied on net borrowing to bridge the fiscal gap.
The early debt reduction was enabled by a Rs2.7 trillion liquidity injection from the State Bank of Pakistan in the form of profit transfers, which allowed authorities to ease short-term domestic debt obligations.
However, the second half of the fiscal year saw a surge in liquidity needs, prompting the government to resume large-scale borrowing. As of May 9, total borrowing stood at Rs2.690 trillion, lower than the Rs6.076 trillion borrowed during the same period last fiscal year but indicative of renewed fiscal pressures.
In FY24, high interest rates of 22 percent had made borrowing more costly. For FY25, the government allocated Rs9.775 trillion for interest payments, nearly half of the Rs18.87 trillion federal budget.
The fiscal deficit for FY25 was originally set at Rs7.283 trillion. With increasing expenditures, including higher defence spending following recent regional tensions, the gap is expected to widen.
To ease import costs and support the economy, the government halved customs duties from 19 percent to 9.5 percent, which may reduce revenue from imports.
GDP growth projections have also been revised downward. The government now expects 2.68 percent growth in FY25, significantly below the initial target of 3.6 percent. Provisional estimates from the National Accounts Committee put actual growth at 2.6 percent.
