Despite receiving a substantial profit transfer from the central bank, the federal government relied heavily on commercial banks to finance its spending in the first half of the current fiscal year, highlighting continued fiscal pressure.
During July to December FY26, the government borrowed a net Rs1.192 trillion from scheduled banks, a sharp contrast to net retirements of Rs1.255 trillion in the same period last year.
This borrowing spree coincided with weaker-than-targeted revenue performance, as the Federal Board of Revenue collected Rs6.159 trillion against a target of Rs6.490 trillion, leaving a shortfall of Rs331 billion. Still, revenues showed a 10 percent increase compared to Rs5.618 trillion collected a year earlier.
The higher borrowing suggests government expenditure outpaced last year’s levels, even after the State Bank transferred a record Rs2.5 trillion profit for FY25. Banks, meanwhile, remain eager lenders, favoring government securities that offer risk-free and attractive returns.
This preference was evident in last week’s Treasury bill auction, where bids touched Rs2.5 trillion. The State Bank said that investments in government papers continue to drive banks’ balance sheet growth.
