The government’s borrowing pattern has taken a notable turn in the first half of FY26, with banks extending Rs672 billion in new loans a clear contrast to the net debt retirement seen during the same period last year.
Fresh figures from the State Bank of Pakistan (SBP) show that, as the mid-point of FY26 approaches, government borrowing stands at Rs672 billion, compared to Rs1.7 trillion in repayments made in the first six months of FY25.
Bankers expect this borrowing trend to accelerate in the latter half of the year due to growing fiscal pressures and revenue shortfalls. They say that with revenues trailing behind targets, the government is increasingly relying on the banking sector to meet its financial obligations.
Market analysts note that dividend inflows to the federal government provided temporary relief in FY25, rising sharply to around Rs2.7 trillion. Still, borrowing from banks remains a key feature of the government’s fiscal policy.
An additional SBP report revealed that banks’ total investments reached Rs36.7 trillion by the end of June 2025, reaffirming their central role in domestic financing. Around 86 per cent of the fiscal deficit is currently covered by bank borrowing, leaving limited liquidity available for private sector credit.
In FY25, roughly 91 per cent of Pakistan’s fiscal deficit was financed through domestic channels a pattern consistent with recent years as external funding repeatedly undershoots expectations. In FY24, about 88 per cent of deficit financing was sourced locally, while FY23 marked a particularly difficult year when external financing gaps led to heavier reliance on banks.
Meanwhile, the World Bank has urged Pakistan to strengthen domestic resource mobilisation and ensure more efficient public expenditure to support sustainable growth. In a report released on December 19, it confirmed approval of $700 million in funding for the Pakistan Public Resources for Inclusive Development – Multiphase Programmatic Approach (PRID-MPA), aimed at promoting macroeconomic stability and improving public services.
The programme will support both federal and provincial reforms to boost revenue collection, enhance spending efficiency, and use data-driven and digital tools for better governance. The PRID-MPA’s total financing package amounts to $1.35 billion with $600 million allocated to federal programmes and $100 million to Sindh.
“The programme’s results-based design ensures that funds will be disbursed only after specific objectives are met,” the World Bank report stated.
