EDITORIAL: The federal government plans to raise 6.525 trillion rupees through sale of security bonds within the next three months (March to May) – a revelation that came after a high level review meeting in the State Bank of Pakistan (SBP) with the agenda of advancing a cashless economy. Three observations are relevant.
First and foremost, the timing of the sale, with the budget in Pakistan presented in June, the last month of a fiscal year, shows an estimated shortfall between revenue and expenditure in the current year. Considering that 93 percent of 2025-26 budget has been earmarked for current expenditure, as is the norm in our budgets, and further considering that disbursement of development expenditure has already been slashed for the first half of the current year (a trend evident in previous budgets which is projected to continue in the remaining four months of the current fiscal year) one can safely assume that the entire amount would be used to fund outlay not backed by a rise in productivity — a highly inflationary policy.
Second, given past precedence (noted in previous as well as the ongoing International Monetary Fund programme loans) the Fund staff is likely to insist on SBP raising the discount rate from the existing 10.5 percent as inflation rises — a rate that is already being cited by the country’s Large-Scale Manufacturing sector as an impediment to their ability to compete with regional competitors who are subjected to a rate less than half the rate in Pakistan today. In other words, a further tightening of our monetary policy will almost certainly choke off the projected Gross Domestic Product growth rate expected to be downgraded due to the ongoing Middle East conflict.
And finally, the budget for the current year itemises bank borrowing (treasury bills, Pakistan Investment Bonds, sukuk, security bonds) at 3.436 trillion rupees for the entire year (2025-26). The decision to raise 6.525 trillion rupees in three months is therefore extremely concerning as it constitutes a 90 percent rise from the budgeted amount. Domestic debt data available for the first six months of the current year reveals a rise from 54.472 trillion rupees by the end of June 2025 to 55.363 trillion rupees by end December 2025, or an increase of 891 billion rupees during the first six months of the year. This shows that 2.545 trillion rupees of the budget amount remained to be borrowed. Data for January and February 2026 is so far not yet available and greater clarity is required to ascertain how much of the 6.525 trillion rupees to be borrowed within the next three months would comprise of the budgeted amount.
Greater clarity is also required as to the interest rate applicable on these new issues (especially given that the cut-off yields in short-term government bonds increased by up to 39 basis points as per data released by the State Bank of Pakistan) that would enable an assessment of the rise in mark-up on domestic debt – a current expenditure item that has been rising as a component of the budget though in the current year the rise was reduced to 7,197,335 million rupees against the revised estimates for last year at 7,906,733 million rupees. This decline was subject to a projected decline in the discount rate by end December 2025 - a claim made to parliamentarians by the two economic team leaders; notably, Finance Minister Muhammad Aurangzeb and Governor State Bank of Pakistan Jamil Ahmed; however, even though the Monetary Policy Committee reduced the rate in its meeting held on 15 December 2025 yet the decline was only 50 basis points, which may not be sufficient to account for a decline in mark up as budgeted.
Business Recorder has consistently supported the government’s attempts to reduce current expenditure however these attempts remain rhetorical and one would hope for practical measures to achieve this salutary objective.
Copyright Business Recorder, 2026
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