Islamabad — Pakistan’s federal government has resorted to net borrowing of Rs1.19 trillion from scheduled banks during the first half of the current fiscal year FY26 (July–December), highlighting mounting fiscal pressures despite a rise in tax revenues, official data reveals.
The latest figures show that government expenditures continued to outpace revenue inflows, forcing authorities to rely heavily on domestic banks to bridge the widening financing gap. This marks a sharp reversal from the same period last year, when the government had managed to retire over Rs1.25 trillion in bank debt, reflecting a significant shift in fiscal dynamics.
During the first half of FY26, the Federal Board of Revenue (FBR) collected Rs6.159 trillion, posting a 10 per cent year-on-year increase compared to the corresponding period last year. However, the collection remained Rs331 billion short of the budgeted target, underlining persistent weaknesses in revenue mobilisation despite aggressive taxation measures.
Analysts note that the shortfall in tax receipts, combined with rigid expenditure commitments — including debt servicing and defence spending — has limited the government’s fiscal space. This has occurred even as the State Bank of Pakistan transferred a record profit of around Rs2.5 trillion to the federal government, a windfall that was expected to ease borrowing needs.
Banking sector data indicates that commercial banks remain willing lenders, largely due to the risk-free and attractive returns offered by government securities. Recent treasury bill auctions witnessed strong participation, with bids running into trillions of rupees, signalling banks’ preference for sovereign instruments over private-sector lending.
Economists warn that sustained reliance on domestic borrowing could crowd out private investment and add to inflationary pressures over time. Pakistan’s public debt stock has already crossed alarming levels, driven mainly by domestic borrowing used to finance fiscal deficits rather than development-oriented spending.
While the government maintains that fiscal consolidation remains a priority, experts argue that meaningful progress will require broadening the tax base, curbing non-essential expenditures, and improving economic growth prospects. Without structural reforms, continued borrowing from banks may deepen fiscal vulnerabilities and complicate long-term economic stability.
As the second half of FY26 unfolds, policymakers face growing pressure to realign fiscal priorities and restore confidence in Pakistan’s ability to manage its public finances without excessive reliance on borrowing.
This story has been reported by PakTribune. All rights reserved.