The federal government borrowing from banks has reversed course in the first half of fiscal year 2026 (FY26) , with Rs672 billion raised so far, compared to net debt retirement during the same period last year, according to data released by the State Bank of Pakistan (SBP).
Read More: Big push for affordable housing: Rs5 billion subsidy in federal budget
SBP figures show that while the government borrowed Rs672bn during the first six months of FY26, it had retired debt amounting to Rs1.7 trillion in the corresponding period of FY25. The shift reflects mounting fiscal pressures as revenue collection remains below targets, bankers and market analysts said.
Financial sector sources noted that the government has continued to rely heavily on domestic banks to manage its fiscal position. Bankers expect borrowing to accelerate in the second half of the fiscal year as liquidity constraints intensify due to revenue shortfalls and rising expenditure needs.
They pointed out that in FY25, dividend payouts to the federal government surged significantly, with around Rs2.7 trillion transferred to the national exchequer. These payouts provided temporary fiscal relief and helped limit borrowing during that year.
Another SBP report revealed that banks’ total investments stood at Rs36.7 trillion by the end of June 2025, highlighting that domestic banks remain the primary source of government financing. Bankers estimate that around 86 per cent of the current fiscal deficit is being financed through bank borrowing, a trend they say is crowding out credit to the private sector.
In FY25, about 91 per cent of the fiscal deficit was financed through domestic sources, while in FY24 the figure stood at nearly 88 per cent. FY23 was described as particularly challenging, as external financing constraints forced the government to rely extensively on bank borrowing.
Read More: Rs1.2tr credit boom masks weak investment and slow GDP growth
Meanwhile, a World Bank report issued earlier this month stressed that Pakistan’s path to sustainable and inclusive growth depends on stronger domestic resource mobilisation and more efficient use of public funds. The bank has approved $700 million under a multi-year programme aimed at improving revenue collection, spending quality and public service delivery.