The federal government significantly reduced its reliance on bank financing during July–September, while private-sector credit demand remained subdued, according to State Bank of Pakistan data.
The federal government retired around Rs2.31 trillion in bank borrowing during the first quarter of fiscal year 2026-27, compared with Rs497.73 billion retired in the corresponding period of the previous fiscal year, according to data released by the State Bank of Pakistan (SBP).
The substantial repayment between July and September 2026 reflects a reduction in the government’s outstanding borrowing from the banking system during the period.
Experts attributed the development to an easing in the policy rate and improvements in economic indicators, which they said had helped the government reduce its dependence on bank financing.
However, the government’s bank borrowing had reached Rs5.49 trillion during fiscal year 2025-26, highlighting its significant reliance on the banking system to meet financing requirements.
The government borrows from banks through the sale of market treasury bills and Pakistan Investment Bonds (PIBs) to finance its budget deficit and meet other funding needs.
The SBP data further showed that the government repaid Rs728 billion to the central bank during the first quarter of FY2027, compared with a retirement of Rs1.33 trillion in the same period of the previous fiscal year.
Meanwhile, private-sector credit demand remained weak despite the government’s substantial retirement of bank borrowing.
The private sector retired Rs67.76 billion during the July–September quarter of FY2027, compared with Rs77.41 billion in the corresponding period of the previous fiscal year.
Experts said the interest-rate environment and geopolitical uncertainty had weighed on private-sector confidence, discouraging businesses from expanding operations and seeking additional financing.
The subdued credit offtake suggests that the government’s reduced borrowing has yet to translate into stronger demand for bank financing from businesses.
Market observers will continue to monitor borrowing trends, interest-rate movements and private-sector credit demand to assess whether improving economic conditions can support greater investment and business expansion during the remainder of FY2027.