KARACHI, April 28, 2026 — The Institute of Cost and Management Accountants of Pakistan (ICMAP) has flagged significant imbalances in the distribution of private sector credit in Pakistan, warning that uneven lending patterns are undermining industrial growth and long-term economic stability.
In its latest Monetary Policy Statement (MPS) Review, the institute noted that while overall credit expansion in the banking system is improving, it is not being channeled effectively toward key productive sectors—particularly manufacturing. Despite strong output growth in recent months, manufacturing continues to face limited access to financing, exposing a structural gap in credit allocation.
According to the report, Pakistan’s broader macroeconomic environment is showing signs of stabilization. GDP growth reached 3.8 percent in the first half of fiscal year 2025-26, while the country posted a current account surplus during July–March FY26. Foreign exchange reserves also climbed to $15.8 billion, supported by external inflows and improved financial conditions. However, ICMAP cautioned that these positive indicators coexist with underlying inefficiencies in credit distribution.
The State Bank of Pakistan recently raised its benchmark policy rate to 11.50 percent to curb inflation and manage global uncertainties, particularly those linked to ongoing geopolitical tensions in the Middle East. While the tighter monetary stance aims to stabilize prices, ICMAP observed that it has not addressed the core issue of sectoral credit misalignment.
The analysis is based on ICMAP’s Sectoral Credit Transmission Gap framework, which evaluates whether financial flows are aligned with real economic activity. The methodology, consistent with global standards used by the International Monetary Fund and the Bank for International Settlements, compares sectoral credit growth with output performance.
Findings reveal a clear divergence across sectors. Agriculture shows higher credit growth relative to output, which may reflect seasonal lending patterns tied to crop cycles but requires close monitoring. In contrast, manufacturing exhibits strong output growth—ranging between five to seven percent in some periods—yet continues to receive insufficient credit, highlighting persistent underfinancing.
The services sector appears relatively balanced, with credit and output growth moving in tandem, suggesting more efficient allocation.
ICMAP stressed that effective monetary policy depends not only on controlling inflation but also on ensuring that credit flows support productive sectors. International evidence shows that misallocation of credit can weaken productivity, slow economic growth, and increase financial risks.
The institute concluded that while Pakistan’s financial system is functioning, the direction of credit remains a critical concern. It urged policymakers to adopt a more targeted, productivity-driven approach to credit allocation to strengthen industrial expansion and sustain long-term economic growth.