The federal government has seen a significant reduction in its borrowing for budgetary support, with a sharp 66% drop in domestic borrowing during the first eight and a half months of fiscal year 2025. According to recent reports, the government borrowed Rs 1.386 trillion from domestic banks, a marked decline from the Rs 4.06 trillion borrowed during the same period in the previous fiscal year. This drop in borrowing has been largely attributed to an influx of foreign funds and the record profits generated by the State Bank of Pakistan (SBP), which have played a pivotal role in easing the government’s budgetary strain.
The government’s borrowing from the central bank has also seen a noticeable shift, with a net borrowing of Rs 116 billion compared to a net retirement of Rs 408 billion during the same period last year. This marks a significant turnaround in the government’s financial approach, signaling the effects of higher foreign inflows and the substantial profits transferred from SBP. The reduction in the need for domestic borrowing is being hailed as a positive development in terms of debt management and fiscal discipline.
The bulk of the government’s borrowing came from scheduled banks, primarily due to restrictions imposed by the International Monetary Fund (IMF) on borrowing from the SBP. However, borrowing from scheduled banks has also seen a steep decline, dropping by 71% to Rs 1.27 trillion from Rs 4.4 trillion during the same period in the previous fiscal year. This reduction in borrowing from both the SBP and scheduled banks highlights the government’s growing ability to manage its budget deficit without relying heavily on domestic loans, particularly in a time of financial stress.
A key factor contributing to this positive shift is the transfer of over Rs 3.4 trillion in record profits from the SBP to the federal government. This infusion of funds has significantly eased the government’s debt burden, providing much-needed relief and reducing its reliance on domestic borrowing. The central bank’s profitable operations have allowed the government to cover its fiscal needs without borrowing as extensively from local financial institutions.
The country’s fiscal position remains delicate, however, as revenue collection has fallen short of targets. As a result, the government had to turn to domestic banks for financing the budget deficit. Nonetheless, the windfall from SBP profits has alleviated the situation, providing temporary respite from the mounting fiscal pressures.
On the provincial front, there has also been a noticeable shift, with provincial governments repaying a significant portion of their outstanding debt to the SBP and scheduled banks. From July 2024 to March 14, 2025, provincial repayments totaled Rs 735.58 billion, more than double the amount repaid during the same period last year, which stood at Rs 312.36 billion. This surge in repayments is a positive sign of fiscal discipline at the provincial level and could further help ease the country’s overall debt load.
The repayment efforts have been led by the provinces of Balochistan, Khyber Pakhtunkhwa, Sindh, and Punjab, which have repaid Rs 38.75 billion, Rs 77.43 billion, Rs 226 billion, and Rs 187 billion, respectively. Additionally, the Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan governments have repaid Rs 39 billion and Rs 12 billion, respectively, contributing to the overall reduction in debt obligations.
In conclusion, while Pakistan continues to face challenges in achieving its revenue targets, the significant decrease in federal borrowing and the substantial profits from the SBP offer a glimmer of hope for fiscal stability. These developments, along with the provincial governments’ repayment efforts, indicate a positive trend in Pakistan’s overall fiscal health, though continued efforts will be necessary to ensure sustainable economic growth and budgetary balance in the long term.