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Pakistan's Private Credit Plunges 79% as Economic Stagnation Bites

Private sector credit in Pakistan has collapsed by 79% year-on-year, indicating a severe economic slowdown where businesses are refusing to borrow even with lower interest rates. Soaring food and utility prices have crushed consumer demand, eroding purchasing power and leaving businesses with no incentive to expand. Chronic political instability, IMF-mandated austerity, and currency risks have created an environment where business owners prefer to pay down debt rather than invest. Consequently, banks are channeling funds into safe government securities instead of productive loans, trapping the economy in a cycle of stagnation.

Key Points: Pakistan Private Sector Credit Plunges 79% Amid Crisis

  • 79% plunge in private credit
  • Consumer demand crashes amid high inflation
  • Businesses avoid expansion due to uncertainty
  • Banks prefer risk-free government securities
  • Political and IMF instability stifles growth
2 min read

Private sector credit plunges by 79 per cent in Pakistan amid economic slowdown

Private sector credit in Pakistan collapses by 79%, signaling deep economic stagnation, crashing demand, and severe business uncertainty.

"Try making a five-year business plan in that environment. - The News International article"

New Delhi, Jan 16

The latest figures released by the State Bank of Pakistan show that private sector credit has plunged by a staggering 79 per cent compared to the previous year, which means businesses have raised few or no loans to expand operations and create jobs, according to a report in Pakistan's The News International.

In the first half of the previous financial year, businesses borrowed Rs 1.87 trillion from banks, which came down to a mere Rs 395 billion in the current financial year.

Despite the State Bank cutting interest rates to encourage borrowing, businesses have not come forward to take loans, which shows that the economy is going through a phase of stagnation.

The article points out that consumer demand in the economy has crashed as food prices have spiked 30-40 per cent at various points. Electricity and gas bills have doubled, tripled, or even quadrupled in some cases. Whatever income gains people made have been eaten by inflation, leading to a shrinking of the real purchasing power.

Businesses have no reason to increase production as the demand for their goods has declined. If a middle-class household is maxing out its budget on food, rent, and keeping the lights on, they're not shopping for new appliances or clothes. So businesses hunker down rather than expanding, the article points out.

"Then layer on the uncertainty. Political instability that never seems to end. IMF programmes that inevitably bring fresh tax hikes and utility price shocks. The constant threat of currency devaluation makes your import costs explode overnight. Try making a five-year business plan in that environment. Most business owners would rather pay down existing debt and sit on cash than take on new risks," the article states.

The article further highlights that banks are also facing problems due to the "previous waves of bad loans." The banks, therefore, prefer putting their funds in Government securities where there is no risk instead of lending them to customers who do not have the capacity to repay.

"Money circles endlessly between banks and government borrowing instead of flowing to the factories, farms and startups that could actually create growth," the article laments.

- IANS

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Reader Comments

P
Priya S
So sad for the common people there. When electricity and food become unaffordable, everything else stops. Families just try to survive. This level of economic pain leads to so much social unrest. Hope things stabilize for the sake of ordinary citizens who suffer the most. 🙏
R
Rohit P
79% drop is not a slowdown, it's a crash. Banks parking money in government securities instead of lending to businesses is the final nail. The entire financial system is frozen. This will have ripple effects on trade in the region, no doubt.
A
Aman W
While the situation is dire, we should also be cautious. A severely weakened economy on our border can lead to increased instability and other problems. It's in everyone's interest, including India's, that there is some economic recovery there. A purely "schadenfreude" approach isn't helpful.
S
Sarah B
Reading this from an investor's perspective. The "constant threat of currency devaluation" mentioned is a killer for any business trying to plan. You can't price anything. This is a fundamental failure to provide a stable economic environment. No wonder credit has dried up.
K
Karthik V
The middle-class household maxing out on food and rent... that's the real story. When the middle class stops consuming, the economy's engine stalls. This is a stark reminder of how crucial price stability and income growth are. We must learn from this and protect our own economic fundamentals.

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