ISLAMABAD, Oct 27 (Wealth Pakistan) – Pakistan’s financial system showed clear signs of strength in the first quarter of FY2026, supported by lower government borrowing, improved liquidity, and gradual expansion of credit to the private sector.
Decline in government borrowing
According to the Finance Division’s Monthly Economic Update & Outlook (October 2025), government borrowing for budgetary support fell to Rs2.04 trillion compared with Rs1.28 trillion during the same period last year. The decline created more space for private-sector lending, signaling higher efficiency in the financial system.
Private-sector credit showed early signs of recovery after a year of subdued activity. Borrowing for working capital and fixed investment improved, led by manufacturing, textiles, and telecommunications. The report noted that improved liquidity and easing inflation encouraged banks to increase financing for productive sectors.
Stable financial intermediation
The Finance Division said financial intermediation remained stable, backed by healthy deposits and low non-performing loan ratios. The currency-to-deposit ratio stood at 37.6 percent, suggesting moderate preference for cash holdings.
Economists observed that reduced dependence on domestic financing reflected progress in fiscal consolidation. They said this shift from public borrowing to private credit would strengthen growth. One economist told Wealth Pakistan that this trend indicates improved confidence in Pakistan’s banking and credit markets.
Reforms and digital banking
The report also highlighted several ongoing reforms in the financial sector. These include the rollout of digital banking initiatives, expansion of SME finance, and the introduction of new credit channels for small businesses. These measures, along with stable interest rates, are expected to stimulate further credit growth in the coming quarters.
Outlook for sustainable recovery
According to the Finance Division, a stronger financial sector will play a vital role in supporting Pakistan’s macroeconomic recovery. It added that maintaining a balance between fiscal consolidation and private credit expansion will be key to sustaining growth in FY2026 and beyond.