Government borrowing from banks falls to Rs5.277tr in FY25

KARACHI: The federal government’s borrowing from banks dropped sharply to Rs5.277 trillion in fiscal year 2025, down from Rs8.498 trillion in the previous year, according to the latest data from the State Bank of Pakistan.

Between July 1, 2024, and June 27, 2025, the government borrowed Rs5 trillion from the banking system for budgetary support, a significant decrease from the Rs7.475 trillion borrowed during the same period of FY24. This reduction in borrowing reflects the government’s commitment to fiscal discipline.

On Monday, the government announced it had repaid Rs500 billion of its debt to the central bank ahead of its scheduled maturity in 2029, resulting in an early retirement of Rs1.5 trillion in public debt. As a result of these early debt repayments, Pakistan’s debt-to-GDP ratio decreased from 75 percent in FY23 to 69 percent in FY25.

Additionally, the government completed a buyback of Rs1 trillion in market debt by December 2024, marking a historic first for Pakistan. Along with the early repayment of Rs500 billion to the SBP, these actions collectively facilitated the early retirement of Rs1.5 trillion in public debt during FY25. Furthermore, a significant decline in interest rates, combined with disciplined borrowing, early repayments, and strategic refinancing, has resulted in savings of Rs830 billion in interest costs in FY25.

“The federal government has outlined an ambitious domestic borrowing plan of Rs5.575 trillion through government securities in the first quarter of FY26 to finance the fiscal deficit,” said Chase Securities in a note.

“This planned borrowing is being seen as manageable due to improved market appetite and falling inflation, which is reinforcing expectations of sustained economic stability,” it added.

Recently, the SBP’s governor, Jameel Ahmad, has stated that fiscal policy has proactively supported monetary tightening, as reflected in the second consecutive primary surplus in FY25. Both tax and non-tax revenues have shown sizable growth, while overall expenditures have remained relatively contained. The government is targeting a higher primary surplus for FY26.

According to data from the SBP, while government borrowings from banks are declining, lending to the private sector is on the rise, indicating a growing credit demand from businesses and consumers amid economic recovery and falling borrowing costs. During FY25, banks provided Rs741.3 billion in loans to the private sector, compared with Rs527.2 billion in the previous year.