The Pakistan government borrowing net Rs1.192 trillion from scheduled banks during July-December 2025. This occurred in Islamabad amid a Rs331 billion shortfall in FBR revenue collection. The borrowing stemmed from increased spending and missed tax targets, according to State Bank of Pakistan data.
This surge in Pakistan government borrowing highlights fiscal pressures in South Asia. It risks crowding out private sector Credit and inflating interest costs, affecting regional economic stability.
FBR Revenue Collection Falls Short
The Federal Board of Revenue collected Rs6.159 trillion in the period against a target of Rs6.490 trillion. This marked a 10 per cent rise from Rs5.618 trillion in the same period last year. However, the Rs331 billion shortfall forced greater reliance on Pakistan government borrowing.
Officials attribute the gap to economic slowdowns and enforcement challenges. FBR revenue collection remains critical for funding public services. Yet, persistent shortfalls widen the Pakistan fiscal deficit.
Data from the FBR Biannual Review for July-December 2024-25 shows similar trends, with December 2024 collection at Rs1.330 trillion against Rs1.373 trillion targeted. This pattern underscores issues in tax mobilisation.
Pakistan Fiscal Deficit Under Pressure
The Pakistan fiscal deficit target for FY26 stands at 3.9 per cent of GDP, as per the federal budget. Actual figures for the first half are not fully released, but heavy borrowing indicates strain.
The Ministry of Finance Annual Borrowing Plan FY 2025-26 aims to diversify funding and reduce gross needs. However, net borrowing of Rs1.192 trillion contrasts with last year’s retirement of Rs1.255 trillion.
This shift signals higher expenditure. The State Bank transferred Rs2.5 trillion profit for FY25 to the government, providing liquidity. Still, banks’ investments in government securities drove the borrowing.
The Pakistan fiscal deficit could exceed targets if revenue gaps persist. This affects debt sustainability in South Asia, where similar fiscal challenges exist.
Treasury Bills Pakistan Drive Borrowing
Banks bid Rs2.5 trillion in recent treasury bills Pakistan auctions, showing eagerness for risk-free yields. The State Bank of Pakistan auction on January 7, 2026, raised funds with yields at 10.20 per cent for one-month bills.
Treasury bills Pakistan remain a key tool for Pakistan government borrowing. The government plans Rs3.25 trillion through market treasury bills in January-March 2026.
The State Bank annual report for 2024-25 notes investments in government securities as the main banking sector driver. This trend continues into FY26.
High yields attract banks, but they limit private lending. Treasury bills Pakistan auctions in December 2025 raised over Rs1 trillion, per State Bank records.
Background
Pakistan‘s economy faces ongoing fiscal hurdles. FY26 budget sets revenue targets at higher levels to curb deficits. Yet, first-half data shows gaps in FBR revenue collection.
External factors like import trends widen trade deficits, indirectly boosting Pakistan government borrowing. Reserves stand at $21.1 billion, but debt servicing consumes significant funds.
The government seeks to balance borrowing with reforms. However, shortfalls in FBR revenue collection persist despite anti-smuggling efforts.
What’s Next
Policymakers may adjust strategies to boost FBR revenue collection. This could narrow the Pakistan fiscal deficit and reduce reliance on treasury bills Pakistan.
Monitoring upcoming auctions will indicate borrowing trends. Sustained shortfalls risk higher interest costs, straining the budget.
The surge in Pakistan government borrowing underscores the need for fiscal discipline. Without revenue gains, deficits may widen, impacting growth.
The borrowing reflects broader economic dynamics. Banks’ preference for government papers due to stability limits Credit elsewhere. This “crowding out” effect hampers private investment.
FBR initiatives include digital reforms for better compliance. Yet, December data shows ongoing challenges. Officials note a 35 per cent growth in some months, but targets lag.
The Pakistan fiscal deficit target assumes 3.6 per cent GDP growth. If unmet, borrowing escalates. South Asian peers like India target lower deficits, highlighting Pakistan’s relative strain.
Treasury bills Pakistan provide short-term liquidity. Longer-term, the Annual Borrowing Plan emphasises diversification. This includes sukuk and external funds.
State Bank policies influence yields. Recent auctions show softening, but demand remains high. Banks parked excess liquidity in these instruments.
Government expenditure includes development projects. However, debt servicing claims a large share. FY26 budget allocates significant funds to interest.
Revenue measures target sectors like tobacco and sugar. Enforcement actions recovered billions, per FBR reports.
Despite this, overall collection misses marks. Analysts suggest structural reforms for sustainable revenue.
The borrowing figure reverses last year’s trend. Retirement of debt then eased pressures. Now, net addition signals spending overruns.
International context matters. IMF programs require fiscal targets. Meeting them curbs excessive borrowing.
South Asia’s growth depends on stable finances. Pakistan’s situation affects regional trade.
Forward, the government eyes export boosts. Trade data shows deficits, necessitating careful borrowing.
FBR revenue collection must improve. Shortfalls force compensatory measures like cuts or taxes.
The Pakistan fiscal deficit trajectory hinges on this. Projections aim for primary surplus.
Treasury bills Pakistan will continue funding gaps. Auctions in coming months test market appetite.
Ultimately, reducing Pakistan government borrowing requires balanced budgets. This demands efficient revenue and controlled spending.
Published in SouthAsianDesk, January 18th, 2026
Follow SouthAsianDesk on X, Instagram and Facebook for insights on business and current affairs from across South Asia.
