According to the latest data from the State Bank of Pakistan, bank credit to the private sector increased by 77% to Rs368.4 billion in the fiscal year ended on June 30, compared to Rs208.2 billion in the same period the previous fiscal year.
In FY23, private sector loan growth slowed due to record-high interest rates and weak economic activity. However, a significant drop in commodity prices reduced firms’ working capital requirements, decreasing their need for borrowing. Despite these challenges, FY24 saw some improvement in private-sector credit growth as the country managed a modest economic rebound.
Pakistan’s economy stabilised due to the government’s strict measures under the $3 billion loan program from the International Monetary Fund (IMF), which concluded in April. The country’s GDP growth recovered to 2.4% in FY24 after contracting by 0.2% in FY23, largely driven by strong growth in the agriculture sector. Due to stringent monetary and fiscal policies, GDP growth in FY25 is expected to remain in the 2-3% range.
The decline in private sector credit growth was partly due to banks’ preference for investing in risk-free government securities, even amid declining corporate loan demand. As government spending needs increased, banks extended unprecedented loans totalling Rs8.564 trillion to the government in FY24, a 130.46% increase compared to the previous fiscal year.
Outstanding bank credit to the private sector as a percentage of GDP stood at 9.0% in FY24. Pakistan’s credit-to-GDP ratio has been steadily decreasing and is one of the lowest in the region, mainly due to high interest rates, crowding-out effects, energy crises, and banks’ preference to lend primarily to blue-chip corporations, according to the Pakistan Economic Survey 2023-24.
