Karachi, March 11, 2026 – The State Bank of Pakistan reported a staggering 203% surge in government borrowing from commercial banks during the first eight months (July–February) of the fiscal year 2025-26, compared to the same period last year.
According to SBP data, the government’s borrowings soared to Rs2.46 trillion, up from Rs811 billion in the corresponding period of FY25, underscoring an intensified dependence on commercial banks to bridge the budgetary financing gap.
Mechanism of Government Borrowing
The government typically raises funds through auctions of Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) to meet fiscal obligations. Analysts noted that the sharp escalation in bank borrowings has placed substantial pressure on liquidity, constraining credit availability for non-government sectors.
Impact on Non-Government Credit
Credit to the non-government sector plunged 62%, falling to Rs694 billion in July–February FY26, from Rs1.74 trillion during the same period last fiscal year.
Within this sector, private sector credit, however, witnessed a positive trajectory, climbing to Rs929 billion, up from Rs607 billion, reflecting selective lending growth in productive segments. Credit to public sector enterprises also increased modestly to Rs92 billion compared with Rs54 billion previously.
The most dramatic shift occurred in lending to Non-Banking Financial Institutions (NBFIs), where Rs347 billion were retired, a sharp contraction from Rs1.08 trillion recorded in the corresponding months of the prior fiscal year.
Analysts’ Take
Financial experts observed that the surge in government borrowings highlights an increasing reliance on domestic banking channels to finance fiscal deficits, squeezing liquidity for the private sector. They warned that unless alternative financing channels are mobilized, continued heavy government borrowing could impede economic growth and investment in productive sectors.
The data underscores the delicate balance between fiscal policy and monetary stability, emphasizing the need for prudent debt management to maintain credit flow for non-government segments while financing the budgetary deficit.