ISLAMABAD – For past two years, soaring interest rates turned State Bank of Pakistan into one of federal government’s biggest revenue contributors, delivering record-breaking profit transfers that helped ease fiscal pressures. But that windfall is now coming to an end as interest rates decline and the economy stabilizes.
The government’s latest budget shows sharp fall in SBP profits, leaving policymakers with a growing challenge: finding new and sustainable sources of revenue.
The federal government is bracing for sharp decline in one of largest sources of non-tax revenue, with budget documents projecting State Bank of Pakistan (SBP) profit transfers to fall by nearly PKR1 trillion in fiscal year 2026-27.
State Bank profits transferred to federal government are expected to drop to Rs1.44 trillion in FY27 from Rs2.43 trillion in FY26, a decline of almost 41%. The projected fall comes as easing inflation and lower interest rates reduce the central bank’s earnings from government securities.
Over past two years, historically high policy rates enabled the SBP to generate exceptional returns on its holdings of Pakistan Investment Bonds (PIBs) and Treasury bills, resulting in record profit transfers that provided a major boost to government revenues. However, with the central bank lowering interest rates to support economic recovery, yields on these instruments have declined, significantly reducing the SBP’s income.
The impact is already visible in the federal budget. Receipts under civil administration and other functions, largely comprising SBP profit transfers, are projected to fall to Rs1.48 trillion in FY27, compared with Rs2.47 trillion in the outgoing fiscal year. The shrinking contribution from the central bank comes at a difficult time for the government, which continues to face mounting fiscal pressures, including rising debt servicing costs, development spending, and increased allocations for social welfare programs.
The loss of nearly Rs1 trillion in expected non-tax revenue is likely to intensify pressure on the government’s tax machinery. To bridge the gap, the Federal Board of Revenue (FBR) has been tasked with collecting PKR14.13 trillion in taxes during FY27, marking a substantial increase over the revised target for FY26.
Budget estimates show total federal revenues of approximately Rs19.3 trillion for FY27, including around Rs5.15 trillion in non-tax receipts. Achieving these projections will depend heavily on the government’s ability to meet its ambitious tax collection goals as extraordinary SBP earnings begin to fade.
The projected decline is not necessarily sign of economic weakness. Instead, it reflects the normalization of monetary conditions after an extended period of elevated interest rates that temporarily inflated the central bank’s profits. Lower inflation and reduced borrowing costs are positive developments for the broader economy, but they also mean the government can no longer rely on windfall income from the SBP to strengthen its finances.
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