Govt Borrowing Surges: Rs2.7 Trillion Rise
- Pakistan's government, after initially retiring Rs1.5 trillion in debt during the first half of fiscal year 2025, has substantially increased its borrowing from commercial banks.
- Between July and December of FY25,the government retired Rs1.541 trillion from commercial banks.
- This debt retirement contrasted with the previous year when the government recorded net borrowing of Rs3.744 trillion during the same period.
pakistan’s government debt has surged, with borrowing from commercial banks reaching Rs2.7 trillion by early May of FY25, a stark reversal from the initial Rs1.5 trillion in debt retirement. This shift reflects a growing fiscal deficit, driven by factors including increased defense spending, and signals potential economic challenges ahead.While the government initially curbed borrowing to meet IMF targets, the second half of the fiscal year saw a notable rise in liquidity demand. Government borrowing in FY24 was costly, impacting the economy due to 22% interest rates; now, interest payments consume nearly half of the budget.News Directory 3 is following this progress closely, as analysts project pressure on the government to secure additional funds.Discover what’s next for Pakistan’s economic trajectory in light of these developments.
Pakistan’s Government Debt Surges to Rs2.7 Trillion in FY25
updated May 25, 2025
Pakistan’s government, after initially retiring Rs1.5 trillion in debt during the first half of fiscal year 2025, has substantially increased its borrowing from commercial banks. by early May, this figure had reached Rs2.7 trillion, reflecting a shift in fiscal strategy.
Between July and December of FY25,the government retired Rs1.541 trillion from commercial banks. This cautious approach aimed to keep the fiscal gap within the limits prescribed by the International monetary Fund (IMF) to ensure continued financial assistance.
This debt retirement contrasted with the previous year when the government recorded net borrowing of Rs3.744 trillion during the same period. the initial retirement marked a departure from previous trends, as the government had consistently been a net borrower.
A major factor contributing to the debt retirement in the first half of the fiscal year was a ample liquidity injection of Rs2.7 trillion from the State Bank of Pakistan (SBP) in the form of profits. This influx of liquidity aided economic managers in reducing short-term domestic debt.
Though,the second half of FY25 saw a sharp rise in liquidity demand,prompting the government to resume large-scale borrowing. According to recent SBP data, total borrowing from July 1 to May 9 (FY25) stood at Rs2.690 trillion, still significantly lower than the Rs6.076 trillion borrowed during the same period in the previous fiscal year. This increase in government borrowing highlights the challenges in managing the fiscal deficit and maintaining economic stability.
Mohammad Sohail, CEO of Topline Securities, projects that “Pakistan’s fiscal deficit is projected to decline to 5.4-5.5 per cent of GDP in FY25, down from 6.8pc in FY24 — the lowest in nine years.”
Borrowing in FY24 proved costly due to the 22% interest rate, which burdened the government with expensive debt and negatively impacted the economy. The government allocated Rs9.775 trillion for interest payments in the FY25 budget,nearly half of the total budget outlay of Rs18.87 trillion.
Sources within the financial sector suggest that the government will require additional funds from banks, especially considering recent geopolitical tensions. Top officials have indicated that the upcoming budget, now postponed to June 10, will include increased defense spending, necessitating either higher revenues or risking a larger fiscal gap. Managing the fiscal deficit remains a key challenge for the government.
The overall fiscal deficit for FY25 was initially set at Rs7.283 trillion. However, increased spending may widen this gap, potentially leading to an even larger deficit in the next fiscal year. Bankers anticipate that the government will continue to rely heavily on commercial banks in FY26 due to a growing revenue shortfall, with limited prospects for higher economic growth and revenue collection within the year.
due to sluggish economic growth, which has exacerbated joblessness and poverty, the government was compelled to revise customs duty from 19% to 9.5%. While this measure will reduce revenue from customs, it aims to lower the import cost of raw materials and stimulate economic activity. The government also revised its GDP growth projection for FY25, now estimating 2.68% growth, significantly below the original target of 3.6%.
What’s next
Looking ahead, the government faces the challenge of balancing fiscal responsibility with the need to stimulate economic growth. The upcoming budget and its approach to managing government debt will be critical in shaping Pakistan’s economic trajectory.