Lending to the private sector in Pakistan has declined sharply in the current fiscal year. This drop raises serious concerns about economic growth and revenue shortfalls. Recent data from the State Bank of Pakistan (SBP) shows net private sector lending fell to Rs563 billion by March 7, 2025, down from Rs1.98 trillion in December 2024. This marks a loss of over Rs1.4 trillion in just two months.
Even with a 1,000 basis point cut in interest rates, banks and borrowers remain hesitant to engage in long-term credit activities. As a result, private sector credit growth has been low for the past three years. This lack of activity contributes to weak economic performance, with average GDP growth at only 1.7%, which is below the population growth rate of 2.4%.
Additionally, limited credit options have increased joblessness. A 2024 United Nations Development Programme (UNDP) report estimates that 47% of the population, around 95 million people, live below the poverty line. This situation highlights the urgent need for a boost in economic activity and support for businesses.
The government aims for a GDP growth target of 2.5% to 3.5% for the fiscal year 2024–25. However, the weak credit flow to businesses raises doubts about achieving this goal. Revenue collection has also fallen short in the first eight months of the fiscal year. If this trend continues, the government may need to raise indirect taxes or borrow more from banks to cover the fiscal gap.