ISLAMABAD: The government on Friday reduced by almost 6 percentage points the mark-up chargeable on development loans and advances to the provincial, local bodies, state-owned entities and public sector financial institutions for the outgoing fiscal year ending on June 30.
In a notification issued by the Ministry of Finance, the mark-up rate for 2025-26 was fixed at 11.89 per cent against 17.74pc in 2024-25 and 17.84pc in 2023-24, which had gone up substantially (more than 73pc) when compared to 10.30pc in 2020-21.
The drop in mark-up chargeable on development loans and advances was because of a decline in the central bank’s policy rate, which had declined from a peak of 22pc to 11.5pc.
These mark-up rates are charged by the federal government on cash development loans (CDLs) to the provincial governments, AJK and Gilgit-Baltistan, besides loans extended to local bodies, public sector entities (PSEs), corporations, autonomous bodies, financial and non-financial institutions and capital outlays of the federal government in the commercial departments.
Interest rate slashed 5.85 percentage points for FY26 from 17.74pc in FY25, but remains 15.4pc above 2020-21 level
“In case of loans and advances for purchase of conveyance and house building, the final rate of mark-up i.e. 11.89pc per annum, has been fixed for 2025-26”, the MOF notification added.
Since 2016-17, the mark-up charged by the federal government to provinces and other entities has surged by almost 175pc, when it stood at 6.54pc and has become a major source of the federal government’s revenue. In 2025-26, the government charged about Rs164bn mark-up on development loans and cash advances to various government entities, including provincial governments, at the rate of 17.74pc.
In 2024-25, the federal government charged a total of Rs245bn through 17.84pc interest from provinces (Rs95.45bn) and SOEs and others (Rs155bn).
The federal government generally contracts development loans from international lenders mostly at around 2pc and extends them onward as cash development loans to the provinces and other institutions at significantly higher mark-up.
The federal government advances loans to provinces, government of Azad Jammu & Kashmir, public sector enterprises, local bodies and others to assist them in carrying out their development programmes and social initiatives. These loans and advances are of two types, namely, cash development loans and foreign re-lent loans.
The cash loans are advanced by the federal government out of its own resources, whereas all others are mostly foreign re-lent loans. Markup accrued on the loans granted to provincial governments, local bodies, financial institutions, non-financial institutions, commercial departments and government servants is one of the key sources of the federal government’s revenue stream. The mark-up is chargeable in accordance with the terms and conditions of each loan agreement but is revised every year on the basis of the government’s own debt servicing cost on government papers like investment bonds and treasury bills.
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