Govt’s domestic borrowing drops sharply amid higher foreign inflows

ISLAMABAD: The federal government’s reliance on domestic banking for budgetary support has plunged by 66 per cent in the first eight and a half months of the current fiscal year (FY25), largely due to higher foreign inflows and record profits from the State Bank of Pakistan (SBP).

According to SBP data, the government borrowed Rs1.386 trillion from the domestic banking system between July 1, 2024, and March 14, 2025. This marks a sharp decline from the Rs4.06 trillion borrowed during the same period last fiscal year, reflecting a substantial drop of Rs2.68 trillion.

During this period, the government took Rs116 billion from the SBP for budgetary support, whereas in the previous year, it had repaid a net Rs408 billion.

The bulk of borrowing came from scheduled banks, as IMF restrictions have limited direct borrowing from the central bank. However, the Rs1.27 trillion raised from scheduled banks was 71 per cent lower than the Rs4.4 trillion borrowed in the same period last year.

Analysts attribute this shift to lower-than-expected revenue collection, which has compelled the government to rely on domestic banks to bridge the fiscal gap. However, a major contributing factor to the reduced borrowing is the record Rs3.4 trillion in profits transferred by the SBP to the government, significantly easing the fiscal burden.

The decline in domestic borrowing aligns with Pakistan’s recent staff-level agreement with the IMF, which is expected to unlock $1 billion under the Extended Fund Facility (EFF). This could pave the way for further financial assistance from other global lenders, reducing the country’s reliance on local banks.

Meanwhile, provincial governments have repaid more than double their previous year’s repayments, returning Rs735.58 billion to the SBP and scheduled banks during the same period, compared to Rs312.36 billion last year.

According to Business Recorder, of this, Rs529.34 billion was repaid to the SBP, with Sindh leading at Rs226 billion, followed by Punjab at Rs187 billion, Khyber Pakhtunkhwa at Rs77.43 billion, and Balochistan at Rs38.75 billion. Additionally, the Azad Jammu and Kashmir (AJK) government cleared Rs39 billion, while Gilgit-Baltistan repaid Rs12 billion.

The significant decline in federal borrowing, coupled with increased foreign inflows and improved fiscal management, signals a shift in Pakistan’s financial strategy, potentially reducing its debt burden in the long run.

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