Lending to the private sector has declined significantly in the current fiscal year, prompting concerns over economic growth and revenue shortfalls.Â
According to State Bank of Pakistan (SBP) data, net lending to the private sector dropped to just Rs563 billion by March 7, 2025, from Rs1.98 trillion at the end of December 2024 — a decline of over Rs1.4 trillion in a little more than two months.
Despite a 1,000 basis point cut in interest rates, both banks and borrowers remain reluctant to engage in long-term credit activity. Private sector credit growth has remained subdued for the past three years, contributing to persistently low economic performance. Average GDP growth over the period has remained at 1.7%, falling below the population growth rate of 2.4%.
The limited credit activity has compounded joblessness, with a 2024 United Nations Development Programme (UNDP) report estimating that 47% of the population — roughly 95 million people — live below the poverty line.
For fiscal year 2024–25, the government has set a GDP growth target of 2.5% to 3.5%. However, weak credit flow to businesses and industry signals subdued economic activity, placing the target at risk.
Revenue collection has also fallen short during the first eight months of the fiscal year. If this trend continues, the government may be forced to increase indirect taxation or borrow further from the banking system to bridge the fiscal gap.
