Recent data from the central bank has revealed a significant decline in bank lending to the private sector in Pakistan. The figures show that during this fiscal year, from July 1 to May 19, lending to the private sector amounted to only Rs28 billion, marking a staggering 98 percent drop compared to the previous year when it stood at Rs1.414 trillion.
The country’s economy has been grappling with a persistently high interest rate of 21 percent and headline inflation at 36.4 percent.
The average inflation rate for the fiscal year is estimated to reach 30 percent, exacerbating the challenges faced by businesses. Aamir Aziz, a textile manufacturer and exporter, expressed concerns about the impact of these conditions on the textile sector, citing declining exports and exhausted cotton stocks.
Bankers have noted that interest rates charged to borrowers are even higher than the policy interest rate of 21 percent, varying based on the perceived risks associated with the borrowers. In such an environment, businesses find it increasingly difficult to sustain their operations.
The high interest rate has already begun to take its toll, leading many analysts and economists to project a negative growth rate for the current fiscal year.
However, the Pakistan Bureau of Statistics reported a 1.55 percent growth rate in the agriculture sector, which contradicts the government’s claim of $30 billion in losses due to last year’s floods. This discrepancy raises doubts about the accuracy of the reported growth figures.
Amidst the intensifying political and economic uncertainties and the IMF’s delay in releasing its ninth review tranche, analysts raise concerns about the country’s ability to overcome the current economic challenges. While significant financial assistance is needed to navigate this difficult situation, some analysts express apprehension that China, a traditional ally, may not extend support as it has in the past.