ISLAMABAD — The federal government on Friday announced a substantial reduction of 5.85 percentage points in the mark-up rate chargeable on cash development loans (CDLs) and advances for the fiscal year 2025–26. According to a notification issued by the Ministry of Finance, the rate has been set at 11.89 percent, down from 17.74 percent in FY25 and 17.84 percent in FY24. The drop is directly attributed to the easing of the State Bank of Pakistan’s benchmark policy rate, which receded from its historic 22 percent peak down to 11.5 percent. This newly adjusted 11.89 percent interest rate will also apply globally to federal loans and advances disbursed to government employees for house construction and transport purchases.
Despite this fiscal relief, the updated mark-up remains roughly 15.4 percent higher than the 10.30 percent baseline recorded in FY21. Over a longer horizon, these federal borrowing rates have surged by nearly 175 percent since FY17, when the rate stood at just 6.54 percent. This lending structure functions as a lucrative revenue channel for the federal apparatus, which typically contracts foreign development loans from international lenders at concessionary rates near 2 percent before on-lending them to provincial governments, Azad Jammu & Kashmir (AJK), Gilgit-Baltistan, and public sector enterprises (PSEs) at significantly higher mark-ups. Through this system, the federal government generated approximately Rs164 billion in interest revenue during FY26, following a massive collection of Rs245 billion in FY25.
