Private Sector Loans Plunge by 50 percent, Threatening Economic Growth Targets

The private sector has significantly reduced its borrowing from banks, returning nearly 50% of the loans within a month, signaling a lack of confidence in business growth and a slowdown in investment activities.

As per the State Bank of Pakistan’s (SBP) figures, lending to businesses stood at Rs1.398 trillion as of January 17, 2025. However, by February 24, 2025, this amount plummeted to Rs742 billion, marking a dramatic 48.3% drop.

This shift indicates that the majority of borrowing in late 2024, particularly during November and December, was largely motivated by banks needing to comply with the 50% advance-to-deposit ratio (ADR) regulation, not by genuine demand for business expansion.

Experts suggest that the rapid reduction in borrowing points to a scarcity of fresh investment opportunities, despite the SBP’s significant rate cuts of 1,000 basis points since June 2024, which reduced the policy rate to 12%.

Meanwhile, the Public Sector Development Program (PSDP) has seen a substantial reduction, with expenditures in the first half of FY25 amounting to just Rs148 billion, a fraction of the adjusted Rs1.1 trillion target.

With both the private and public sectors scaling back spending, meeting the 3.2% GDP growth target for FY25 is becoming increasingly challenging. Tight fiscal policies under IMF-mandated consolidation have led to stringent government expenditure controls, while domestic borrowing surged by Rs2.723 trillion in the first half of the fiscal year, pushing total domestic debt to Rs49.883 trillion.