Govt Bank Borrowing Drops 84 percent, But Fiscal Pressures Persist

Government borrowing from banks has plunged by 84% in the first seven and a half months of the current fiscal year, dropping to Rs658 billion from Rs4.044 trillion recorded in the same period last year, as per figures released by the State Bank of Pakistan (SBP).

This sharp decline follows a substantial policy rate reduction from 22% to 12%, which has directly impacted bank earnings from low-risk government securities.

Despite reduced borrowing, fiscal pressures persist due to a growing tax revenue gap, which has already reached Rs606 billion in the first eight months of FY25. The government’s Rs12.97 trillion revenue target appears increasingly difficult to meet, raising concerns about potential borrowing spikes later in the fiscal year to offset expenditure shortfalls.

The ongoing reduction in borrowing aligns with IMF’s ongoing macroeconomic review of Pakistan’s fiscal position. Finance Minister Mohammad Aurangzeb remains optimistic about securing the next $1.1 billion tranche under the IMF’s $7 billion loan program, though managing the fiscal deficit remains a pressing challenge.

Historical data reflects Pakistan’s heavy reliance on bank loans, with borrowing reaching Rs8.591 trillion in FY24, Rs3.716 trillion in FY23, and Rs3.448 trillion in FY22.

For FY25, the government has allocated Rs8.736 trillion for domestic debt servicing and Rs1.038 trillion for foreign debt obligations, bringing total debt servicing costs to Rs9.774 trillion. While a reduction in borrowing supports efforts to keep the fiscal deficit within IMF-defined limits, the widening tax revenue shortfall remains a significant threat to financial stability.