KARACHI: For the first time in 2026-27, the private sector has shifted from retiring debt to net borrowing from banks.
The change appears to be the outcome of the government’s continuous effort to force banks to pump maximum liquidity into the private sector.
State Bank data on Monday showed that private-sector net borrowing was Rs87 billion during July 1 to Oct 23 FY27, compared with Rs29bn in debt retirement in the same period last fiscal year.
The prime minister once again reiterated that the Ministry of Finance should take action against banks delaying loan disbursements to farmers, small and medium-sized enterprises (SMEs), and applicants under the Prime Minister’s Apna Ghar scheme.
However, the banks have yet to provide enough liquidity to stimulate the private sector and push the growth rate above its level of the past four years.
SBP data showed that only Islamic branches of conventional banks extended loans, rather than receiving debt retirement, as seen in Islamic and conventional banks.
Conventional banks recorded a meagre debt retirement of Rs320 million, compared with Rs117bn retired in the same period last fiscal year. Islamic banks recorded a net debt retirement of Rs63bn, compared with Rs25bn in the last fiscal year.
While banks face high risks in lending to the private sector, the private sector is reluctant to borrow and invest, apparently for three reasons: high borrowing costs; political uncertainties, including terrorism in the two provinces; and a looming war in the region.
The State Bank last week increased the interest rate by 50 basis points to 12pe, further reducing investors’ chances of borrowing. At the same time, bankers and analysts believe that the State Bank would have to further increase the interest rate in the coming months, since the four-month average inflation is still in double digits.