Pakistan’s Private Sector Shuns New Loans, Retires Rs 8 Billion

Pakistan’s Private Sector Shuns New Loans, Retires Rs 8 Billion

Karachi, January 24, 2024 – Pakistan’s private sector has exhibited resilience in the face of challenging economic conditions, retiring a substantial amount of Rs 8 billion in the current fiscal year as opposed to seeking fresh loans.

The decision is attributed to soaring interest rates, high utility tariffs, and the persistent depreciation of the rupee.

According to data released by the State Bank of Pakistan (SBP) on Wednesday, the private sector chose to retire existing loans amounting to Rs 8.03 billion from July 1, 2023, to January 12, 2024. This marks a significant departure from the previous fiscal year, where new loans worth Rs 408 billion were acquired during the same period.

Market analysts are pointing to the prevailing high-interest rates in the country as the primary driver behind this robust trend in loan retirement. Additionally, challenges posed by exorbitant gas and electricity tariffs, coupled with the continuous depreciation of the rupee, have created substantial hurdles for industrial activities.

The SBP has maintained a stringent monetary policy stance by keeping the benchmark policy rate at 22 percent for several months. However, there is anticipation in the market for a potential reduction in the policy rate in the upcoming Monetary Policy Committee (MPC) announcement scheduled for January 29, 2024.

Chase Securities Limited analysts have noted that market expectations of a surprise rate cut have been building since the October 2023 Monetary Policy Statement (MPS). Despite these expectations, prevailing sentiment leans towards the likelihood of interest rates remaining unchanged.

A closer look at the loan patterns reveals that the private sector retired a staggering Rs 82 billion from conventional banking branches, in stark contrast to the Rs 440 billion borrowed during the review period. However, fresh loans obtained from Islamic banks surged to Rs 20 billion, marking a significant shift from the retirement of Rs 455 billion.

Market experts have attributed the decline in new loans from the conventional banking system to extensive lending by banks in government securities. The federal government, during the period from July 1, 2023, to January 12, 2024, obtained loans from the banking system totaling Rs 3.90 trillion, compared to Rs 1.28 trillion in the corresponding period of the previous fiscal year.

As Pakistan’s private sector navigates these economic challenges, the anticipation of a potential policy rate cut and continued monitoring of market dynamics remain crucial factors for businesses determining their financial strategies in the months ahead. The upcoming SBP monetary policy meeting is eagerly awaited to provide further clarity on the trajectory of Pakistan’s economic landscape.