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Near zero Pakistani private sector borrowing in 15 months
Publication Date : 14-10-2013
Private sector participation in investment activities with bank money has been declining and it came down to almost zero in the fiscal year 2013.
For the last 15 months, private sector credit off-take is negative, which experts said is the worst sign for economy.
How long the private sector will remain out of the banking system, no one has a ready answer. Bankers say there are no signs of improvement.
At the end of fiscal year 2013, private sector borrowing was minus 19 billion Pakistani rupees while at the end of first quarter of fiscal year 2014, it was minus 23 billion Pakistani rupees. This trend showed that there was no interest from the private sector in borrowing from commercial banks.
However, at the end of FY-12, private sector borrowings were to the tune of 235 billion Pakistani rupees.
Experts say Pakistan’s economy has been in stalemate for five years and private sector participation in investment activities has been declining. Even the government of PM Nawaz Sharif has, so far, failed to energise the private sector.
The government has been making efforts to attract foreign investors, but it was not doing enough to motivate local investors as reflected by the private sector behaviour in the credit market.
“Not a single macro problem disturbing local investors has been addressed in the first four months of the current government,” said Aamir Aziz, a manufacturer and textile-based exporter.
He said the list is long, but energy crisis; terrorism and costly banking money are key irritants to investment.
The State Bank in its last year’s report had mentioned that private sector borrowing was limited to working capital which was short term producing no impact for promotion of investment.
Foreign investment has already gone down and only few sectors, like oil and gas exploration, are still receiving foreign investment while other sectors, like telecom, were repatriating both their investments and profits.
The State Bank recently increased the policy interest rate which directly impacts lending to private sector and makes it costlier for them.
The policy interest rate is now 9.5 per cent while lending rate to private sector varies from 12 to 18 per cent and in case of consumer lending, it could be more than 24 per cent.
“The most important of all is government borrowing from banks which provides banks risk-free return, encouraging them not to involve with the private sector,” said a senior banker of a middle-size bank.
The State Bank recently revealed that 87 per cent of banking liquidity has been invested in government papers that keeps banks profitable without taking risk.
US$1=106.1 Pakistani rupees