Govt borrowing from banks reaches Rs3.5 trillion in 11 months of FY26

Federal government borrowing from banks reached Rs3.5 trillion during the first 11 months of fiscal year 2025-26, while credit extended to the private sector remained limited to Rs986 billion, according to State Bank of Pakistan data.

The government’s own finances have remained under pressure from a revenue shortfall. Total revenue collection amounted to Rs11.232 trillion during the first 11 months of FY26 against a revised target of Rs11.257 trillion for the period.

The shortfall indicates that higher petroleum levy receipts are helping the government manage the gap between targeted and collected revenue.

Bank credit data also showed limited financing for small and medium enterprises and non-bank financial institutions despite government announcements aimed at expanding housing finance, supporting SMEs and encouraging private-sector-led economic growth.

Credit to SMEs and non-bank financial institutions recorded net retirement of Rs362 billion during the period, compared with borrowing of Rs423 billion in the corresponding period of the previous fiscal year.

The State Bank reduced banks’ cash reserve requirement from 6% to 5% with effect from January 30 to release liquidity and encourage private-sector lending.

However, private-sector borrowing remained concentrated mainly in short-term working capital requirements rather than longer-term investment and business expansion.

Government borrowing continues to provide banks with a comparatively low-risk avenue for deploying their funds.

The government borrowed Rs5.434 trillion from banks during FY25, compared with Rs8.519 trillion in FY24, indicating further borrowing room based on the levels recorded in the previous two fiscal years.

Financial experts expect government borrowing to increase further during June, when departments and institutions require additional liquidity to clear outstanding payments before the fiscal year closes.

Higher tax receipts and borrowing from commercial banks have allowed the government to maintain spending during FY26 despite the International Monetary Fund’s emphasis on expenditure control.