Heavy reliance on commercial banks continues as debt servicing consumes major share of FY27 budget
The federal government borrowed more than Rs4.9 trillion from commercial banks during the first eleven and a half months of fiscal year 2025-26, exceeding the amount raised in the same period last year despite a notable increase in tax revenues.
According to State Bank of Pakistan data, government borrowing from banks reached Rs4.918 trillion between July 1, 2025 and June 12, 2026. In comparison, borrowing during the corresponding period of the previous fiscal year stood at Rs3.7 trillion. With 18 days still left in the fiscal year, analysts believe total borrowing may surpass the Rs5.434 trillion recorded for all of FY25.
Borrowing trend remains strong despite improved revenue
The latest figures show that the government’s dependence on bank financing has remained strong even as tax collections have improved. Over the last three fiscal years, from FY24 through June 12 of FY26, cumulative borrowing from commercial banks has climbed to Rs18.86 trillion.
That amount now exceeds the total federal budget outlay of Rs17.57 trillion proposed for FY27. Economists say the trend reflects the state’s continued difficulty in balancing expenditure with revenue generation, forcing authorities to rely on domestic borrowing to bridge fiscal gaps.
Debt servicing pressures squeeze development spending
Meanwhile, the rising borrowing burden has significantly increased debt servicing obligations. In the upcoming FY27 budget, the government has allocated nearly Rs8 trillion for debt repayments, which accounts for more than half of total expenditure.
As a result, only around Rs1 trillion has been left for the Public Sector Development Programme. State Bank figures also show that domestic debt increased by Rs5.566 trillion over the past year to reach Rs58.089 trillion in April. Since June 2025 alone, domestic debt has risen by Rs3.6 trillion.
Economists argue that the government still lacks a credible strategy to reduce spending pressures. They say policymakers continue to focus primarily on increasing tax revenue, while insufficient attention is being paid to cutting wasteful expenditure and improving public sector efficiency.
