Pakistani Banks Hold Exceptionally High Share of Government Debt, Report Finds
A new policy brief has found that Pakistani banks hold a significantly higher proportion of government debt compared to global averages, highlighting growing reliance on the banking sector for domestic borrowing.
According to the report by the Karachi School of Business and Leadership, government securities account for around 60% of total banking assets in Pakistan. This is nearly four times higher than the global median of about 14.9% across more than 80 countries.
The findings point to an increasing financial dependence between the government and commercial banks, as the state continues to finance fiscal deficits through domestic borrowing.
Rising Public Debt Levels
The report notes that Pakistan’s public debt has increased substantially over the past decade, rising from Rs. 19.7 trillion in fiscal year 2016 to Rs. 80.5 trillion by fiscal year 2025. Domestic debt holdings have also reached Rs. 54.5 trillion.
Scheduled banks reportedly hold a major share of marketable government securities, reflecting their strong exposure to sovereign borrowing instruments.
Why Banks Prefer Government Securities
Experts cited in the report suggest that banks favor government securities due to relatively stable returns, lower risk requirements, and minimal credit assessment compared to private sector lending.
In contrast, lending to businesses—particularly small and medium enterprises—requires higher risk management and collateral, making it less attractive for financial institutions.
Impact on Private Sector Credit
The heavy reliance on government borrowing has contributed to limited credit availability for businesses. Private sector credit in Pakistan remains around 11.5% of GDP, which is significantly lower than in many regional economies.
Small businesses are particularly affected, receiving a limited share of total bank lending despite their importance in job creation and economic activity.
Policy Concerns and Alternatives
The report also highlights concerns that high government borrowing from banks may be crowding out private investment and limiting economic growth opportunities.
Authorities have introduced various initiatives aimed at expanding alternative funding sources, including retail investment schemes and digital platforms. However, the report suggests that diversification efforts remain limited so far.
