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- The Pakistani government is lowering interest rates on development loans provided to provincial governments and state-owned enterprises (SOEs) as part of its broader fiscal policy.this move aims to...
- In late August 2025, the government decreased the interest rate on development loans to provincial governments, local bodies, and public sector financial institutions by approximately 0.1 percentage point.
- This reduction represents a shift from the sharp increases seen in recent years.
Pakistan Reduces Interest rates on Advancement Loans to Provinces and soes
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The Pakistani government is lowering interest rates on development loans provided to provincial governments and state-owned enterprises (SOEs) as part of its broader fiscal policy.this move aims to reduce the financial burden on these entities while still generating ample revenue for the federal government.
Rate Reductions and Past Context
In late August 2025, the government decreased the interest rate on development loans to provincial governments, local bodies, and public sector financial institutions by approximately 0.1 percentage point. The mark-up on Cash Development Loans (CDLs) for Fiscal Year 2025 (FY25) was set at 17.74%, a slight decrease from the 17.84% charged in FY24.
This reduction represents a shift from the sharp increases seen in recent years. The interest rate had risen significantly, increasing by over 73% from 10.30% in FY21. However, since FY17, the overall interest charged on development loans has surged by nearly 175%, climbing from 6.54%.
Slashes rate by 151bps to 12.46pc for 2024-25
revenue Implications
Despite the rate reductions,these loans remain a meaningful revenue source for the federal government. The government projects Rs245 billion in revenue from loan interest in FY25, with Rs95.45 billion coming from provinces and Rs155 billion from SOEs and othre entities. Looking ahead, the government aims to collect Rs284 billion in interest revenue during FY26.
A key dynamic is the difference between the rates at which the federal government borrows funds and the rates at which it lends to provincial governments and public institutions. the government secures relatively low-interest loans from international lenders but extends funds domestically at considerably higher rates.
Loan Types and Purpose
Cash Development Loans (CDLs) and Foreign Re-lent Loans are crucial for funding provincial development programs and social initiatives. the interest rates on these loans are reviewed annually, based on the government’s own debt servicing costs. This suggests a direct link between the federal government’s financial obligations and the rates charged to sub-national entities.