Private sector slashes bank borrowing by 48% as investment appetite remains weak

The private sector has returned nearly half of its bank borrowings within a month, signaling weak business confidence and a lack of new investment initiatives. 

According to State Bank of Pakistan (SBP) data, lending to the private sector stood at Rs1.398 trillion by January 17, 2025, but fell sharply to Rs742 billion by February 24, reflecting a 48.3% withdrawal of bank loans.

The trend suggests that most of the lending in November and December 2024 was driven by banks seeking to meet the 50% advance-to-deposit ratio (ADR) requirement and avoid penalties rather than genuine business expansion. 

Analysts believe the rapid repayment indicates that the private sector lacks new projects to utilise available credit, despite the SBP’s cumulative 1,000 basis point interest rate cut since June 2024, bringing the policy rate down to 12%.

At the same time, the Public Sector Development Programme (PSDP) has seen a significant reduction, with spending in the first half of FY25 reaching only Rs148 billion against a revised allocation of Rs1.1 trillion. 

With both the private and public sectors limiting expenditures, the targeted 3.2% GDP growth for FY25 appears increasingly difficult to achieve. The International Monetary Fund (IMF)-backed fiscal consolidation measures have forced strict control over government spending, while domestic borrowing surged by Rs2.723 trillion in the first half of the fiscal year, reaching Rs49.883 trillion.