Private sector borrowing declines by 37% amid economic challenges

The banking sector has seen a doubling of profits in CY23, largely due to investments in government securities

In the first nine months of the fiscal year 2024, private sector borrowing from banks sharply declined by 37%, falling from Rs299 billion in the previous year to Rs191.5 billion.

This reduction occurs in a context of high interest rates and continued economic uncertainty, according to data from the State Bank of Pakistan (SBP).

The Asian Development Bank (ADB) has projected that Pakistan’s economy will grow by 1.9% in FY24, driven by a rebound in private sector investment linked to ongoing reform measures.

This projection comes despite the economy contracting by 0.2% in FY23. However, current SBP data suggests a different scenario, indicating a significant drop in private sector engagement.

The banking sector, meanwhile, has seen a doubling of profits in CY23, largely due to investments in government securities, which offer high yields and low risk.

This trend has led to reduced availability of funds for private sector lending, exacerbated by heightened default risks under current economic conditions.

Analysts have noted a downturn in key sectors such as real estate and construction, with the latter operating at only 20% capacity.

The government’s substantial borrowings from banks, which have reached Rs4.8 trillion in the same period, have led to cuts in the Public Sector Development Programme to address fiscal deficits.

Political and security concerns add another layer of complexity.

Following recent general elections and government changes, the business community continues to express fears over increasing law and order issues, particularly in major cities like Karachi.

This has prompted several businesses and families to relocate to places like Dubai or Canada for safety and stability.

The economic landscape presents a dual narrative of hopeful projections by international lenders like the ADB and the stark realities of operating a business under current financial and socio-political conditions.

 

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