Punjab’s borrowing from banks for budgetary support surged to Rs753.4 billion during the first seven weeks of the fiscal year 2026-27, more than doubling from Rs306.8 billion recorded during the corresponding period last year. The increase of more than 145% highlights a sharp rise in the provincial government’s reliance on bank financing during the opening weeks of the new fiscal year. According to data from the State Bank of Pakistan (SBP), cited by Dawn, Punjab’s borrowing between July 1 and August 21 also exceeded the federal government’s borrowing of Rs571 billion during the same period.
The borrowing position varied considerably among Pakistan’s provinces during the period under review. While Punjab recorded borrowing of Rs753.4 billion, Sindh maintained deposits of Rs69.6 billion with the State Bank of Pakistan and Balochistan held deposits of Rs43.4 billion. Khyber Pakhtunkhwa, meanwhile, recorded borrowing of Rs1.8 billion. The SBP explains that a negative sign in government deposits represents a credit balance, while a positive sign indicates a withdrawal from the banking system. The differences between provinces reflect varying fiscal positions and the manner in which provincial governments are managing their available funds and financing requirements.
The increase in provincial borrowing comes against the backdrop of fiscal arrangements under which provincial governments are required to generate fiscal surpluses and share them with the federal government. At the same time, the federal government continues to depend heavily on bank borrowing to meet its financing requirements. Punjab’s borrowing during the first seven weeks of FY27 therefore stands out not only because of its significant increase from the previous year but also because it has surpassed the federal government’s borrowing over the same period.
The country’s revenue-sharing arrangement also remains an important factor in the fiscal position of both federal and provincial governments. The divisible pool used to determine federal and provincial revenue shares has been frozen at Rs13.35 trillion for FY27, while projected tax collection has been set at Rs15.264 trillion. This leaves approximately Rs1.9 trillion available to the federal government beyond the frozen divisible pool. The arrangement comes as provincial administrations continue to depend heavily on transfers from the federal government to finance their budgets and public services.
Provincial governments receive up to 78% of their revenues through federal transfers, according to the figures cited in the report. At the same time, around 80% of consolidated provincial expenditure is directed towards recurrent costs, limiting the portion of provincial budgets available for development and other spending priorities. The distribution of public expenditure at the local level has also changed significantly over time. According to World Bank reports, local governments’ share of total public spending has declined from around 10% in 2005 to less than 5% currently.
The World Bank has also highlighted the imbalance between the transfer of revenues to provincial governments and the federal government’s own expenditure responsibilities. According to the cited assessment, while the federal government transfers a larger portion of revenues to provinces, it does not proportionately reduce its own expenditure. Since 2010, the largest increase in provincial spending has reportedly been directed towards administrative costs rather than sectors such as education and health.
Another area of concern is the limited contribution of agricultural income tax to provincial revenues. Agriculture contributes more than 20% of Pakistan’s gross domestic product, yet collections from agricultural income tax remain negligible. No province has generated significant revenue from this tax category, leaving substantial potential revenue untapped. The combination of heavy dependence on federal transfers, high recurrent expenditure and limited provincial revenue mobilisation continues to shape the fiscal position of the provinces.
Punjab’s Rs753.4 billion borrowing during the first seven weeks of FY27 therefore represents a substantial increase from the previous year and comes at a time when provincial governments face pressure to maintain fiscal surpluses while meeting their spending requirements. The figures also show a wide difference in the financial positions of the provinces, with Punjab relying heavily on bank borrowing while Sindh and Balochistan maintained deposits with the SBP and Khyber Pakhtunkhwa recorded comparatively limited borrowing.
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