KARACHI: Despite mobilising more than Rs24 trillion through borrowing and higher revenues over the past two and a half years, the government has failed to stimulate economic growth, as extensive bank borrowing crowded out credit to the private sector.
According to official data released by the State Bank of Pakistan (SBP), government borrowing from banks amounted to Rs8.519tr in FY24, Rs5.434tr in FY25 and Rs2.1tr during the first seven months of the current fiscal year (FY26). Cumulatively, bank borrowing reached around Rs16tr during this period — nearly half of the total outstanding government borrowing of Rs32.3tr recorded at the end of June 2025.
At the same time, the country’s revenues almost doubled within two years, reflecting a sharp turnaround in fiscal collections. Total government revenues rose from Rs9.6tr to nearly Rs18tr, driven by higher tax receipts, the introduction of new taxes and support from the central bank.
Overall, the government generated additional liquidity of about Rs24.5tr through increased revenues and bank borrowing. However, this substantial inflow has not translated into meaningful economic expansion.
Analysts attribute the weak growth performance to policy shortcomings and inefficient allocation of funds. Heavy government borrowing from banks reduced the availability of credit for the private sector, with cumulative private-sector lending during the same period limited to just Rs2.2tr.
Despite the scale of available liquidity, economic activity remained subdued and growth outcomes disappointing. Over the past three years, the economy has struggled to gain momentum. While the official GDP growth target for FY26 ranges between 3.7pc and 4.7pc, the SBP expects growth to remain at the lower end of 3.7pc.
This sluggish performance persists even as inflation has eased to 5.6pc. Nevertheless, the central bank has so far refrained from cutting interest rates to encourage greater private-sector borrowing. The only recent relief for exporters has been a reduction in the refinancing rate, but export performance has yet to show a notable improvement.
Business and industrial circles continue to call for interest rates aligned with the inflation rate, arguing that cheaper credit is essential for expansion. Policymakers, however, appear content with low but stable growth.
The prolonged period of weak economic growth has had severe social consequences. Poverty has increased steadily, with an estimated 46pc of the population now living below the poverty line. The government has yet to unveil a comprehensive strategy to tackle rising poverty, unemployment and income erosion, problems that are currently being mitigated largely through charitable support rather than sustainable economic measures.