Govt pays off Rs1.5 trillion debt in first half of FY25

ISLAMABAD: The government has managed to reduce its debt from commercial banks by Rs1.541 trillion in the first half of this fiscal year.

This is a significant turnaround compared to the Rs3.74 trillion it borrowed during the same period last year, showing much better fiscal management.

According to data from the State Bank of Pakistan (SBP) released on Tuesday, from July 1 to January 3 of FY25, the government shifted from borrowing money to paying off its debts—something it hasn’t been able to do in recent years.

Samiullah Tariq, Head of Research and Development at Pak-Kuwait Investment Company, explained that the government’s debt reduction was mainly supported by a large profit earned by the SBP.

This windfall allowed the government to focus more on long-term debt, instead of relying on short-term borrowing.

The SBP posted a record profit of Rs3.42 trillion in FY24, thanks to high interest rates and gains from the exchange rate. Of this, the SBP transferred Rs2.7 trillion to the government, providing a major cash boost.

In contrast, the government had borrowed a record Rs8.519 trillion in FY24 at high interest rates, most of which were above 20 per cent. This heavy borrowing was costly, especially as the interest rate stayed at 22 per cent throughout the year.

Despite facing a Rs388 billion shortfall in revenues during the first half of FY25, the government’s ability to reduce debt has surprised many.

However, experts believe that the government will likely need to borrow again in the second half of the fiscal year, as interest rates have fallen to 13 per cent, and are expected to drop further after the upcoming monetary policy review on January 27.

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