KARACHI: The government borrowed Rs1.608 trillion from banks in the nine months of the current fiscal year ending June 2025, down from Rs4.874 trillion a year earlier, reflecting fiscal discipline, according to the economic survey released on Monday.
Pakistan’s Economic Survey for 2024-25 was published ahead of the federal budget for the next fiscal year, starting in July, and is set to be unveiled on Tuesday in close coordination with the International Monetary Fund (IMF). Prime Minister Shehbaz Sharif’s government aims for a 4.2 per cent GDP growth in FY26, with a likely focus on maintaining a primary surplus, broadening the tax base, implementing energy sector reforms, stimulating investment, and pursuing privatisation.
Analysts believe there will be limited scope for tax relief in the upcoming budget. Instead, the government is expected to increase non-tax revenues through higher levies on petroleum products and tighten development expenditures. However, defence spending may remain insulated from cuts due to the current geopolitical situation.
The survey indicated that from July to March FY25, government sector borrowing for budgetary support fell to Rs1.32 trillion, compared with Rs4.219 trillion during the same period last year. The government repaid Rs287.4 billion in debt to the State Bank of Pakistan (SBP), down from Rs654.7 billion the previous year.
“Low government borrowing reflects fiscal consolidation as the fiscal deficit remained 2.4 per cent of GDP during July-March FY2025, compared with 3.7 percent in the same period last year,” the survey showed.
“The fiscal deficit was financed entirely through domestic borrowing sources, in contrast to the corresponding period of the previous year, where approximately 88 percent of the financing was sourced domestically and the remaining 12 percent from external sources,” it said
In the first nine months of the current fiscal year, total markup expenditure reached Rs6.439 trillion, representing 66 per cent of the full-year budget estimate of Rs9.775 trillion. Most of this expenditure was on domestic debt, which accounted for Rs5.783 trillion, or 66 per cent of the annual allocation of Rs8.736 trillion. Meanwhile, interest payments on external debt totaled Rs656 billion, equivalent to 63 per cent of the budgeted Rs1.039 trillion.
Pakistan’s interest payments have surged from Rs2 trillion to Rs8.6 trillion over the last six years, creating a significant burden due to rising debt and high interest rates, said Topline Securities in a brief note.
Interest expenses have doubled as a share of GDP, now reaching almost 8.0 per cent, which limits funding for development, health, and education. However, with interest rates decreasing to 11 per cent from their peak, FY25 shows early signs of relief. This could provide the government with some breathing room to support economic recovery in FY26, it added.
Public debt stood at Rs76 trillion at the end of March, with domestic debt at Rs51.51 trillion and external debt at Rs24.5 trillion, according to the survey. The government reduced short-term debt by retiring Rs2.4 trillion in treasury bills and introduced new financial instruments, including a two-year zero-coupon Pakistan Investment Bond and a one-month T-bill.
Strategic liability management efforts included repurchasing approximately Rs1 trillion in government securities through buybacks and exchanges. Pakistan also issued its first green sukuk worth Rs30 billion, marking progress in green finance and sustainable investment.
The survey reported that from July to March FY25, credit to the private sector rose significantly to Rs767.6 billion, a substantial increase from Rs265.2 billion during the same period last year. In the private-sector credit, loans to businesses expanded by Rs830.9 billion, compared with Rs307.8 billion borrowed in the same period last year.