The federal government borrowed Rs672 billion from banks during the first half of FY26, marking a sharp reversal from the same period last year when it had retired around Rs1.7 trillion in net debt, according to latest data released by the State Bank of Pakistan (SBP).
Financial market experts said the government continues to rely heavily on the banking sector to remain within its targeted fiscal space. They noted that large dividend payouts by the SBP in FY25, amounting to around Rs2.7 trillion, had provided temporary fiscal relief.
Another SBP report showed that banks’ total investments stood at Rs36.7 trillion by the end of June 2025, highlighting the continued dependence on domestic banks for deficit financing. Bankers estimate that around 86% of the fiscal deficit is currently financed through bank borrowing, which they say limits credit availability for the private sector.
In FY25, about 91% of the total fiscal deficit was financed from domestic sources, while domestic borrowing accounted for nearly 88% of financing in FY24. External financing shortfalls have remained a persistent issue, pushing the government to rely on banks, particularly during FY23 when external inflows fell sharply.
Bankers expect borrowing to accelerate in the second half as revenue collections remain below targets and liquidity pressures mount.
Separately, a World Bank report issued on December 19 said Pakistan’s transition to inclusive and sustainable growth requires stronger mobilisation of domestic resources and more efficient use of public funds. The World Bank Board has approved $700 million under the Pakistan Public Resources for Inclusive Development – Multiphase Programmatic Approach, with total financing of up to $1.35 billion planned over multiple phases.
