New Delhi: The latest figures released by the State Bank of Pakistan show that private sector credit has plunged by a staggering 79 per cent compared to the previous year, which means businesses have raised few or no loans to expand operations and create jobs, according to a report in Pakistan’s The News International.
In the first half of the previous financial year, businesses borrowed Rs 1.87 trillion from banks, which came down to a mere Rs 395 billion in the current financial year.
Despite the State Bank cutting interest rates to encourage borrowing, businesses have not come forward to take loans, which shows that the economy is going through a phase of stagnation.
The article points out that consumer demand in the economy has crashed as food prices have spiked 30-40 per cent at various points. Electricity and gas bills have doubled, tripled, or even quadrupled in some cases. Whatever income gains people made have been eaten by inflation, leading to a shrinking of the real purchasing power.
Businesses have no reason to increase production as the demand for their goods has declined. If a middle-class household is maxing out its budget on food, rent, and keeping the lights on, they’re not shopping for new appliances or clothes. So businesses hunker down rather than expanding, the article points out.
“Then layer on the uncertainty. Political instability that never seems to end. IMF programmes that inevitably bring fresh tax hikes and utility price shocks. The constant threat of currency devaluation makes your import costs explode overnight. Try making a five-year business plan in that environment. Most business owners would rather pay down existing debt and sit on cash than take on new risks,” the article states.
The article further highlights that banks are also facing problems due to the “previous waves of bad loans.” The banks, therefore, prefer putting their funds in Government securities where there is no risk instead of lending them to customers who do not have the capacity to repay.
“Money circles endlessly between banks and government borrowing instead of flowing to the factories, farms and startups that could actually create growth,” the article laments.
(IANS)
