State Bank Profit Transfers to dip over 40pc in FY27, pressuring Pakistan’s Fiscal Outlook

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 R