Private sector credit in Pakistan hit a three-year high during the first five months of FY26. The State Bank reported lending crossed Rs1.2 trillion, up from Rs41 billion in the same period last year. Bankers said most loans were for short-term working capital, not long-term investment. Despite the surge, industrial growth remains slow. Analysts warned that economic expansion may remain limited unless investment increases.
The main borrowing was for rice crops and related activities. Rice is one of Pakistan’s largest crops with both domestic and international markets exceeding Rs1 trillion. Exports fell from $3.692 billion in FY24 to $2.952 billion in FY25. Bankers said low interest rates encouraged borrowing for working capital. They emphasized that the loans were not aimed at expanding business operations.
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Investment-to-GDP ratios remain weak despite higher credit. FY24 saw a ratio of 13.1 percent, the lowest in over 50 years. FY25 improved slightly to 13.6 percent but still fell short of FY23’s 14.13 percent. Analysts said slow GDP growth of 2 to 3 percent hindered broader economic recovery. Liquidity shortages and poor investor confidence continue to constrain long-term investment.
The government has urged domestic investors to step forward but heavy taxes discourage new investments. Industries face rates up to 60 percent, including super tax. Experts noted the government has offered few incentives to attract foreign investment. Security concerns in certain provinces and tensions with neighboring countries also deter investors. As a result, unemployment and poverty remain high despite higher lending.
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Bankers and analysts agreed that the private sector credit surge mainly supports short-term needs. Investment for expansion remains delayed without further incentives. They stressed that sustainable growth depends on long-term financing and stable business conditions. The country needs reforms to convert high credit flows into productive investment. Until then, high private sector credit may not translate into economic growth.