ISLAMABAD: The government has slightly reduced the markup rate on development loans for the fiscal year 2024-25, decreasing it by 0.10 percentage point.

The new rate, set at 17.74pc, is a minor reduction from 17.84pc in 2023-24, which had previously increased significantly from 10.30pc in 2020-21.

The new markup rate, notified by the Ministry of Finance on Thursday, applies to cash development loans (CDLs) extended by the federal government to provincial governments, local bodies, state-owned entities (SOEs), and public sector financial institutions. The markup is also applicable to loans for specific purposes, such as the purchase of conveyance and house building, with the final rate for 2024-25 set at 17.74pc per annum.

Since 2016-17, the markup charged by the federal government has surged by almost 175pc, from 6.54pc to the current rate of 17.74pc. This markup is a significant source of revenue for the government. In 2024-25, the government expects to generate Rs245bn in revenue from the markup — Rs95.45bn from provinces and Rs155bn from SOEs and other entities. For the fiscal year 2025-26, the target has been set at Rs284bn, with Rs95.8bn expected from provinces and Rs188bn from SOEs.

The federal government typically borrows from international lenders at an interest rate of around 2pc and then re-lends the funds to provinces and public sector entities at a higher markup.

Published in Dawn, August 22th, 2025