Private sector lending records sharp fall

The volume of credit being issued to the primate sector has witnessed a sharp fall as neither banks nor borrowers seem interested in relying on loans to fuel business growth. As per credible reports, this lack of interest persists despite the State Bank of Pakistan’s (SBP) massive 1,000 basis point cut in interest rates, which occurred gradually over seven months.

Independent analysts have voiced concerns regarding revenue generation and economic growth, as low lending could cause the domestic economy to stagnate. According to reports, both economic growth and revenue have displayed signs of underperformance.

Data released by the SBP has revealed that private-sector lending dropped to an abysmal 563 billion rupees by March 2025. Comparing these figures to December 2024, this figure stood at a respectable 1.98 trillion rupees.

A suboptimal level of credit has been issued to the private sector over the past three years. Reports from credible sources have labelled credit growth as ‘extremely poor’ – a fact which is evident upon consideration of the negative impact on growth, which stands at a low 1.7 percent.

Analysts have compared the abysmally low growth rates to the annual population growth, which dwarfs the economy’s growth rate by 2.4 percent.  An uptick in private sector borrowing levels often results in the expansion of business operations, creating many employment opportunities.

However, reports claim that the converse is true in Pakistan, and a rise in unemployment levels could soon be witnessed. For Islamabad, this matter is especially alarming as the national average unemployment rate already sits at an uneasy 7.5 percent.

A further increase in unemployment rates because of low growth rates could exacerbate the persisting economic issues that plague Pakistan. As per a recent report from the United Nations Development Program (UNDP), a staggering 47 percent of Pakistani’s live below the poverty line.

The federal government intended to target a growth rate of 2.5 to 3 percent for FY 2024-25; however, suboptimal borrowing levels have not allowed the economy to grow per the expectations of economic analysts. 

Some believe that a further reduction in interest rates by the SBP could allow the economy to rebound; however, the SBP may refrain from further cuts as it has to ensure that inflation does not run rampant as it did in 2023.