Pakistan News

Private sector borrowing shoots up to Rs212bn

Private sector borrowing shoots up to Rs212bn

KARACHI: Private sector borrowing from banks during the six months to December stood at Rs212 billion, higher than Rs208bn the sector borrowed during the entire previous fiscal year.

The country’s economy, which grew at 4.2 per cent during FY15 despite low credit off-take, is expected to achieve a growth rate of 5pc if the pace of borrowing continues with the same pace.

Low interest rate, which still has no chance to see an upward move due to prevailing historically low inflation, is the major reason behind the rise in private sector borrowing. Another reason is improving law and order across the country which has helped restore investors’ confidence.

Cheaper money also has great attraction for the government as it has been reducing its interest payments through borrowing from cheaper sources.

During the first half of this fiscal year, the government changed its borrowing pattern from the scheduled banks. It started borrowing through short-term cheaper treasury bills (T-bills) compared to high-yield Pakistan Investment Bonds (PIBs).

In the third quarter (January to March) of this fiscal year, the government plans to borrow Rs1.6 trillion through T-bills and Rs200bn through PIBs.

A recently issued report of the State Bank of Pakistan indicated that the banks were also lending for the long term while most of the money goes for working capital. Long-term borrowing for the manufacturing sector would yield better results for the overall economic growth.

If the pace of borrowing continues for the next six months, the credit off-take will surpass the borrowing made in FY14 that was Rs371bn.

For the last eight years, the country has been facing a declining trend of credit-to-GDP ratio which fell to as low as 13pc in FY15 from 27pc in FY08.

If this ratio increases, it will also help attract foreign investment which is negligibly small at present.

Published in Dawn, January 13th, 2016

Similar News
Recent News
Back to top