Consumer Loans Dip 6.1%: Pakistan Economic Survey 2023-24

Consumer Loans Dip 6.1%: Pakistan Economic Survey 2023-24 – The Economic Survey of Pakistan 2023-24, released on Tuesday, reported a 6.1 percent decline in consumer loans for the outgoing fiscal year. The survey highlighted a significant net retirement of Rs 52.6 billion in consumer loans during July-March FY 2024, compared to a net retirement of Rs 21.1 billion in the same period last year.

Historically, auto loans have dominated the consumer loans portfolio. However, the survey revealed that stringent prudential regulations regarding loan tenor, down payment, and exposure cap, coupled with persistently high interest rates, have led to a net retirement of auto loans despite some relaxation in the import of inputs.

The housing and construction finance segment under consumer loans also saw a decline. The survey attributed this to rising production costs, increased domestic policy uncertainty, and a slowdown in construction activities.

During FY 2023, Private Sector Credit (PSC) increased by Rs 208 billion, marking a growth of 2.3 percent, a sharp decline from the borrowing of Rs 1330 billion (17.4 percent growth) in FY 2022. This deceleration continued into July-March FY 2024, with PSC expanding by Rs 188 billion, showing a year-on-year growth of 1.0 percent, compared to an expansion of Rs 300 billion (5.0 percent growth) in the same period last year.

The slowdown in PSC was attributed to sluggish economic activities, an uncertain economic environment, and high borrowing costs. The increase in the policy rate and the rates on the Export Finance Scheme (EFS) and Long Term Finance Facility (LTFF), which are linked to the policy rate, further exacerbated the situation.

Despite these challenges, private sector businesses’ credit demand showed an increase. During July-March FY 2024, credit demand rose by Rs 307.8 billion compared to Rs 271.1 billion during the same period last year. The manufacturing sector took the highest share of total loans, amounting to Rs 294.7 billion (96 percent of loans). Within this sector, rice processing and sugar manufacturing led the growth in working capital loans, availing Rs 52.4 billion and Rs 193.3 billion, respectively. Working capital loans expanded by Rs 275.7 billion during the review period, against a borrowing of Rs 113.3 billion last year.

However, the demand for borrowing under fixed investment loans was lower, at Rs 47.2 billion in July-March FY 2024, compared to Rs 147.5 billion in the same period last year. Contributing factors to this sluggish trend included high borrowing costs, import restrictions on raw materials and plant and machinery, weak medium-term business prospects, lack of clarity on the policy front due to political uncertainty, and the rationalization of subsidized LTFF.

The Economic Survey 2023-24 underscores the need for strategic interventions to revive consumer lending and private sector credit growth. Addressing the challenges posed by high interest rates, policy uncertainty, and economic instability will be crucial for fostering a more favorable lending environment in the coming fiscal year.