Bank lending to the federal government has surpassed Rs44 trillion, with credit extended to the private sector reportedly accounting for only 21 percent of advances by banks. Data released by the State Bank of Pakistan (SBP) has revealed that credit lent to Islamabad rose by a staggering Rs8.5 trillion in fiscal year (FY) 2023-24.

 

Reports outline the excessive amount of bank borrowing by the government, drawing parallels to the funds banks lent to the private sector across various periods. As per reports, in FY 2022-23, funds lent to the private sector stood at a measly Rs46 billion.

 

While advances to the private sector have grown in recent years, with SBP figures suggesting that lending to the private sector sat at Rs513 billion and Rs742 billion for FY 2023-24 and FY 2024-25, respectively, the figure still falls short of the Rs8.5 trillion lent to the government.

 

Data covering the first eleven months of FY 2024-25 suggests that Islamabad’s total holdings in market securities reached Rs44.89 trillion. Of this amount, scheduled banks held the majority share at 78.9 percent or Rs35.44 trillion, while non-bank entities accounted for the remaining 21.1 percent.

 

According to reports, the corporate sector is displaying a trend to invest its funds in government securities. This move displays sentiments in the business community that suggest a shift away from risky ventures to safer, lower-yield securities.

 

Reports reveal that this trend has resulted in corporate holdings of government securities ballooning to a whopping Rs9.5 trillion. Analysts have highlighted that an increase in risk appetite could allow for this capital to fund physical investments, allowing for a boost in economic growth and a reduction in the unemployment rate.

 

It merits a mention that banks’ holding of government debt inadvertently detrimentally impacts the economy. This is because these funds, which have been tied up to finance the government’s expenditures, could have been lent out to businesses for commercial or industrial purposes.

 

Reports have underlined the federal government’s growing debt burden, which data suggests has surged to Rs76.045 trillion. A breakdown of this debt reveals that external debt accounts for Rs22.585 trillion of the total debt burden, while domestic debt accounts for the remaining Rs53.468 trillion.