'Debt servicing swallows half of tax revenue'

Rs8.054tr earmarked for mark-up payments as govt debt surges to Rs81.93tr

KARACHI:

Businessmen Panel Progressive (BMPP) General Secretary Khurram Ijaz has warned that debt servicing is swallowing more than half of Pakistan's tax revenue, urging policymakers to rethink borrowing-led strategies and strengthen indigenous economic capacity.

Citing budget documents, he noted that the government has earmarked Rs8.054 trillion for mark-up payments in FY2026-27, including Rs6.96 trillion on domestic debt and Rs1.07 trillion on foreign debt. With the Federal Board of Revenue (FBR) targeting Rs15.26 trillion in tax collection, debt servicing alone will consume the majority of taxpayers' contributions.

"How long can the economy sustain such fragile fiscal conditions?" he asked. "It is only mark-up. Just imagine the quantum of debt."

According to State Bank of Pakistan (SBP) data, total government debt surged to Rs81.93 trillion by April 2026, up from Rs74.94 trillion a year earlier – an increase of nearly Rs7 trillion in just 12 months.

Ijaz said the government continues to finance its budget deficit through domestic borrowing from the banking system via Treasury Bills and Pakistan Investment Bonds. He noted that commercial banks prefer investing in government securities due to secure and high returns, rather than channelling funds into productive sectors.

He warned that persistently high interest rates are compounding fiscal pressures, calling on the SBP to significantly reduce the policy rate to encourage investment. "Keeping high interest rates only attracts people to park their money in banks and earn returns without contributing to the real economy," he said.

He observed that many industrialists are shifting capital away from manufacturing into banking deposits due to high energy costs, labour expenses and regulatory burdens. While monetary policy had previously seen easing to 10.5%, the trend has reversed, with the policy rate now at 11.5%.

Ijaz noted that past restrictions on government borrowing from the SBP were intended to avoid excessive monetary expansion, influenced by International Monetary Fund (IMF) requirements. As a result, borrowing pressure has shifted toward commercial banks, increasing fiscal management costs.

He urged the government to shift focus away from debt-driven financing and prioritise export-led growth and industrial expansion, warning that continued reliance on borrowing will only deepen the tax burden on citizens.