KARACHI: Reversing the debt retirement trend, the private sector made significant borrowings from banks in April to meet its working capital needs.
The State Bank of Pakistan’s data showed that private sector borrowings started increasing in April to Rs751bn as of May 2.
By Dec 31, 2024, banks had loaned Rs1.4 trillion to the private sector. This surge in lending was partly driven by banks’ efforts to meet Advance-to-Deposit Ratio (ADR) requirements to avoid a 15 per cent incremental tax. However, most of the borrowed money was retired.
The State Bank has halved its policy rate in intervals to 11pc from 22pc since June 2024 amid a sharp deceleration in inflation, which clocked in at an unprecedented level of 0.3pc in April.
Bankers believe that borrowing increased due to low interest rates and some macro indicators improvement, but it was not as large as anticipated by the government to revive the economic expansion.
The interest rate at 11pc seems attractive for trade and industries, as some segments of the trade and industries extended a cautious appreciation to the SBP for delivering a 100bps cut in its last monetary policy statement for the next two months.
However, the leadership of apex trade and commerce chambers and associations felt the rate cut was inadequate and called for bringing the policy rate to single digits to boost economic activities.
The private sector made significantly much higher borrowings from banks compared to Rs239.8bn in the same period last year.
Experts said the increase in private-sector borrowing could be for working capital, which means short-term borrowing.
Published in Dawn, May 14th, 2025
