Credit to Pakistan’s private sector reached a three-year high of Rs 1.2 trillion in the first five months of the current fiscal year, a jump from just Rs 41 billion during the same period last year, according to data released by the State Bank of Pakistan.
According to a report by Dawn, this increase in private sector credit comes amid a backdrop of slow economic growth. The country’s investment-to-GDP ratio has been steadily declining, with FY24 seeing the lowest ratio in over five decades at just 13.1 percent, down from 14.13 percent in FY23. Although there was a slight improvement in FY25, the figure remained low, pointing to an investment drought that has persisted despite the credit increase.
Despite the large credit inflow, which would typically be seen as supportive of higher economic activity, bankers remain cautious about the longer-term prospects. The credit flow is predominantly for operational purposes and not for expansionary investment. The increased borrowing is also attributed to low interest rates, which have been kept at 11 percent since May 2025, making borrowing less risky for short-term needs.
This surge in credit, while indicative of liquidity in the market, has raised concerns among bankers, who pointed out that the majority of the funds are being used for short-term working capital needs rather than long-term investment.
The government has been urging domestic investors to step forward, but businesses are grappling with high taxes, including the 60 percent super tax. The lack of government incentives to promote investment and the ongoing economic and security challenges facing the country have further discouraged both domestic and foreign investment, according to analysts.
As Pakistan struggles with slow growth—revised to 3 percent for FY25 from an initial 2.6 percent—experts warn that without a significant boost in investment, particularly in the industrial sector, the country risks stagnation.
