Punjab’s borrowing from banks for budgetary support surged by 145% to Rs. 753.4 billion during the first seven weeks of the current fiscal year, highlighting growing liquidity pressures in the country’s largest province.
According to the latest data from the State Bank of Pakistan (SBP), Punjab borrowed Rs. 753.4 billion between July 1 and August 21, 2026, compared with Rs. 306.8 billion during the same period last fiscal year.
The sharp increase means Punjab’s borrowing more than doubled compared with the corresponding period of FY26.
Provincial governments are required to generate fiscal surpluses and transfer them to the federal government. At the same time, the federal government continues to rely significantly on bank borrowing to meet its financing requirements.
The World Bank has highlighted an imbalance in Pakistan’s fiscal system, noting that the federal government transfers a larger share of revenue to provinces while failing to reduce its own spending proportionately.
The government has frozen the divisible pool at Rs. 13.35 trillion to meet strategic national requirements. Meanwhile, tax collection is projected to reach Rs. 15.264 trillion in FY27, potentially leaving around Rs. 1.9 trillion with the federal government beyond the frozen divisible pool.
SBP data shows that the federal government borrowed Rs. 571 billion for budgetary support during the same seven-week period. Punjab’s borrowing was therefore significantly higher than the federal government’s borrowing during the period.
Other provinces recorded different financial positions. Sindh held deposits of Rs. 69.6 billion with the SBP, while Balochistan held Rs. 43.4 billion. Khyber Pakhtunkhwa, meanwhile, borrowed Rs. 1.8 billion.
The SBP has clarified that a negative figure in its government deposit data represents a credit balance, while a positive figure indicates a withdrawal from the banking system.
Provincial governments continue to depend heavily on federal transfers, which account for as much as 78% of their revenues. Their own tax collection remains comparatively limited, particularly from sectors such as agriculture and retail.
This dependence can create additional fiscal pressure when provinces are required to generate larger cash surpluses for the federal government. It may also reduce the resources available for essential public services, including education, healthcare and local infrastructure.
World Bank data further indicates that provincial administrative spending has increased more rapidly than spending on education and health since 2010. Recurrent expenditures continue to dominate provincial budgets, accounting for around 80% of consolidated provincial spending.
Local governments also receive a relatively small share of public spending. Their share has fallen to less than 5%, compared with around 10% in 2005.
Agriculture contributes more than 20% to Pakistan’s GDP, but provincial governments continue to collect limited revenue through agricultural income taxes.
The lack of significant agricultural tax revenues has restricted provinces’ ability to strengthen their own-source income. This contributes to the country’s broader challenge of maintaining a low tax-to-GDP ratio.
Punjab’s sharp increase in borrowing during the first seven weeks of FY27 therefore highlights the wider fiscal pressures facing provincial governments, particularly their dependence on federal transfers and limited capacity to generate revenue through their own tax sources.
