The federal government’s borrowing from banks during the first half of FY26 marks a clear reversal of last year’s trend. This signals renewed fiscal pressure and tighter liquidity conditions.
Latest figures released by the State Bank of Pakistan show that the government borrowed a net Rs672 billion from banks in the first six months of FY26. This contrasts sharply with the same period of FY25. During that period, the government retired debt totalling Rs1.7 trillion.
Bankers expect borrowing to accelerate in the second half of the fiscal year. They cite revenue shortfalls and liquidity constraints as key factors, noting that collections remain below official targets. Financial market participants say the government continues to depend on domestic banks to remain within its fiscal framework.
Data from the central bank further highlights the scale of this reliance. Banks’ total investments stood at Rs 36.7 trillion as of the end of June 2025. This underscores their dominant role in financing the government. According to bankers, around 86 per cent of the fiscal deficit is now funded through bank borrowing. They warn that this trend restricts credit flows to the private sector.
In FY25, roughly 91 per cent of Pakistan’s fiscal deficit was financed domestically, with banks providing the bulk of funding. This dependence has persisted for several years. External financing has frequently fallen short of expectations. In FY24, about 88 per cent of deficit financing came from domestic sources, while FY23 proved particularly challenging due to severe external funding pressures.
Read: Pakistan’s Federal Debt Surges 12.7% to Rs73.69 Trillion, SBP Reports
Meanwhile, international lenders have stressed the need for structural reform. A World Bank report issued on December 19 said Pakistan’s long-term growth depends on stronger domestic resource mobilisation. It also depends on more efficient and transparent use of public funds.
The World Bank’s Board of Executive Directors has approved $700 million for the Pakistan Public Resources for Inclusive Development – Multiphase Programmatic Approach (PRID-MPA). The multi-year programme aims to support macroeconomic stability. Additionally, it aims to improve service delivery and strengthen public finance management.
According to the report, the PRID-MPA will support reforms at both the federal and provincial levels to boost revenue collection. It will also improve spending quality and use data-driven tools for better governance. The programme provides up to $1.35 billion in total financing. This includes $600 million for federal initiatives and $100 million for Sindh.
The World Bank noted that the programme’s results-based structure ensures funds are released only after agreed objectives are met. This approach reinforces accountability and fiscal discipline.
