Pakistan’s Borrowing Hits Rs3.5 Trillion in 11 Months Amid IMF Warnings

Pakistan’s federal government borrowed approximately Rs3.5 trillion from commercial banks during the first eleven months of fiscal year 2026, according to recent data released by the State Bank of Pakistan. The continued reliance on domestic bank financing comes despite ongoing recommendations from the International Monetary Fund urging Islamabad to limit public spending and increase fiscal space for private sector credit growth. Analysts expect the borrowing figure to rise further as the fiscal year concludes in June, driven by settlement of outstanding obligations and liquidity needs. During the same period, lending to the private sector remained significantly lower at around Rs986 billion, highlighting a persistent imbalance that economists describe as crowding out private investment. Credit to SMEs and non-bank financial institutions also reflected volatility, with repayments outweighing fresh disbursements in certain segments. Although total revenue collection remained close to targets, shortfalls were partially offset through petroleum levy collections rather than broad-based taxation reforms. Meanwhile, commercial banks continued to benefit from risk-free returns through heavy government lending. Despite policy adjustments, including reduced reserve requirements to encourage private lending, overall economic impact remained limited. The IMF acknowledged fiscal improvements, noting a strong primary surplus, but attributed it largely to spending control alongside continued reliance on bank borrowing.