The Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) has stated that the massive investment in government papers leave little room for lending to the private sector, as the banks’ investments in government papers reached Rs26 trillion by December 2024, contributing 57.6 percent to the central government’s domestic debt. The BMP Chairman and FPCCI former president Mian Anjum Nisar said that the government has been using taxpayers’ money to pay unprecedented returns to the banks, urging the central bank to review its policies to facilitate the private sector. The latest data issued by the State Bank of Pakistan (SBP) revealed how banks’ money runs the central government and how the banks earn record profits from taxpayers’ money. Mian Anjum Nisar said that it’s not new that the government borrows from banks but the size of banks money has been increasing as domestic debts. The data also showed that the banks had been making record profits by getting high interest rates, like 22 per cent during the entire FY24, while the return on T-bills remained around this rate and sometimes even higher than the policy rate. Moreover, the government borrowing from the SBP also increased by record highs during the period, increasing inflationary pressures on the economy. He observed that private sector has found no space to borrow from financial institutions, as banks are preferring to park their money in risk-free government securities in huge sums. He said that banking money’s flow has now directed towards the government papers, which will definitely hit the economic growth adversely, affecting the investment landscape of the country too. The BMP Chairman was of the opinion that the government’s shift for borrowing from the central bank to commercial banks will likely result in banks making profits however this would hurt overall economic growth. The State Bank of Pakistan’s latest data shows the that a low volume of private sector credit offtake means lower domestic investment, hindering business activity and economic growth and promoting unemployment in the country. He added the trend is alarming and a criteria of bad financial management of the country, as all the monetary aggregates tell us a sad story of the failure of the authorities. The off take at the beginning of last financial year was much higher than the preceding year but disappointing economic situation along with the higher rates discouraged the private sector from borrowing additional funds during the later months. The central bank had justified massive rate hikes throughout the fiscal year citing rising inflationary pressures. With weaknesses in private capital inflows continue to persist, the Central Bank should cut policy rates to spur growth, as cut would infuse confidence in the business community and propel economy. The industry is expecting the cut in interest rate, which could help boost private sector growth. This massive investment in government papers left little room for lending to the private sector. However, in the second quarter of the current fiscal year, the banks had to increase lending to meet the advance-to-deposit ratio (ADR) limit to avoid the 15 incremental tax imposed by the federal government. Banks suddenly increased their lending to the private sector, which reached around Rs1.3tr; now, this lending size is shrinking. To avoid tax on lower ADR, the banks lent Rs1.3tr to the non-banking financial institutions (NBFIs) as short-term lending. The details showed that the banks’ most significant investment was in the longer-term Pakistan Investment Bonds (PIBs). The total investment of PIBs till Dec 2024 was Rs26tr. Scheduled banks’ investment in PIBs was Rs19.4tr while the rest of Rs6.332tr was invested by non-banks or corporate sector. The non-banks include insurance, funds, corporates and others. The Islamic bonds, sukuk, also attracted a total Rs5.757tr till Dec 2024 while the banks’ investment in this bond was Rs3.2tr and non-banks invested the rest of Rs2.555tr. However, the market treasury bills (MTB) attracted was much lower than the PIBs as it was about Rs9.961tr — banks’ invested Rs5.332tr while Rs4.622tr by others. The total investment by the banks and non-banks at the end of Dec 2024 was Rs41.5tr; scheduled banks’ invested (PIBs+MTB+sukuk) Rs28tr and non-banks Rs13.5tr. The government has budgeted an overall fiscal deficit of 6.9pc of GDP for 2024-25 against the revised 7.4pc for 2023-24. The federal budget deficit is projected at Rs8,500bn for 2024-25 against Rs7,506bn budgeted for 2023-24; it was revised upwards to Rs8,388bn. The figures suggested that banking in Pakistan could not stimulate the economy. Instead, the banks have been making money by investing in government papers, and the government retires its debt with taxpayer’s money. The government has always been quick to impose new taxes for higher revenue collection, but there is no check on spending. Financial experts believe that the fiscal deficit would be much higher than the estimates given in the budget. The FBR is already short of Rs388bn from the target.