Private sector borrowing slips 37pc in July-March

Amid an uncertain economic outlook with high downside risks, the private sector’s participation in economic growth remains unnoticeable as it is not borrowing from banks for business expansion.

However, the Asian Development Bank (ADB) in its latest report sees Pakistan’s economy expanding at 1.9 per cent in FY24 driven by a rebound in investments by the private sector linked to progress on reform measures.

The ADB’s report surprised many analysts keenly watching the slowing economy, which contracted by 0.2pc in FY23.

The State Bank of Pakistan’s (SBP) latest data showed that the private sector borrowing dropped 36.95pc to just Rs191.5 billion in the first nine months of FY24, compared to Rs299bn in the same period last year when the GDP growth was negative. However, the ADB believes the private sector rebounded this year. The SBP data portrays a different picture.

“The multilateral lenders are satisfied with the reforms they propose. The outcome of these reforms has many negative consequences for trade and industry,” said Amir Aziz, a manufacturer and exporter of textile finished products.

“If the interest rate remains at an unprecedented 22pc and inflation is above 27pc, where is any space for the private sector to enter and play a role in the growth of the economy?” he asked, adding that we have been witnessing electricity prices go up each month while the gas tariff has crossed all limits.

Bank profits doubled in CY23 thanks to investing in risk-free and high-yielding government papers. They are not restricted from parking their liquidity in government papers, and there is no rule binding them on lending to the private sector.

Some bankers and analysts said the high cost of doing business restricted the private sector from borrowing expensive money. At the same time, banks were reluctant to extend loans to the private sector as default risks increased with interest rates like 22pc.