KARACHI: Large-scale government borrowing from the banking system over the past two and a half years has reduced the flow of credit to the private sector, limiting economic activity despite a sharp rise in public revenues and liquidity, according to official data released by the State Bank of Pakistan (SBP).
The SBP data shows that the government borrowed Rs8.52 trillion from banks in FY24, followed by Rs5.43 trillion in FY25 and a further Rs2.1 trillion during the first seven months of FY26. Cumulative bank borrowing during this period stood at nearly Rs16 trillion, accounting for about half of the total government bank borrowing stock of Rs32.3 trillion as of June 2025.
At the same time, government revenues nearly doubled over two years, rising from Rs9.6 trillion to almost Rs18 trillion, supported by higher tax collection, new revenue measures and transfers from the central bank.
In total, the government mobilised around Rs24.5 trillion through a combination of borrowing and higher revenues during this period.
Despite the scale of this liquidity, economic growth remained subdued. Bank lending to the private sector over the same period totaled Rs2.2 trillion, reflecting a sharp divergence between government borrowing and credit availability for businesses.
Economists note that increased government demand for bank financing reduced the space for private-sector lending.
Pakistan has struggled to improve growth outcomes over the past three years, with the GDP growth target for FY26 set between 3.7% and 4.7%. The central bank expects growth to remain closer to the lower end of this range.
Although inflation has eased to around 5.6%, the central bank has maintained a cautious monetary stance and has not signaled broad-based interest rate cuts to stimulate private credit. The only recent relief for exporters has been a reduction in refinancing rates, which has yet to translate into a visible export rebound.
Industry and trade bodies have repeatedly called for interest rates to align more closely with inflation to improve access to credit. Policymakers, however, appear focused on maintaining stability rather than pursuing faster expansion.
Low growth has contributed to rising poverty levels, with estimates suggesting that about 46% of the population now lives below the poverty line. Analysts note that no comprehensive policy response has been outlined to address unemployment and poverty, which continue to be mitigated largely through informal support and charitable assistance.
