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KARACHI: Private sector has further been sidelined as their borrowing from banking system fell to Rs8 billion in four months of the current fiscal year, reflecting a worsening investment environment.
The borrowing trend was better during the same period last year when it touched Rs86bn.
The State Bank reported on Tuesday that till November 7, the private sector borrowing was Rs8.053bn. The borrowing fell from Rs22bn till October 31 indicating the shyness of the private sector to invest in the country.
Bankers and analysts said that the private sector was crowded out as banks preferred investment in the government securities which is high yielding and risk free.
Since the dip in inflation to 5.8 per cent in October, the real interest has gone up to about 3pc and if it is compared with the return on Pakistan Investment Bonds, the real interest jumps further high.
The cut-off yield on three-year PIBs in the last auction held on October 22, was 12.48pc, five-year 12.97pc and 10-year 13.44pc respectively. The most traded bond was three-year PIBs which offers much higher than the interest rate.
The State Bank on November 15 announced a rate cut by 50 basis points making the interest rate as 9.5pc providing space for higher private sector borrowing with relatively cheaper money.
The rate cut reflected the bullish rally in the shares market on Tuesday. Bankers said the rate cut is important for private sector but not attractive. However, the business community warmly welcomed the cut with a hope to see a further drop in the interest rate in coming months.
Analysts believe that unless the government stops borrowing through high yielding PIBs the private sector would not be entertained by the banks.
They said if the private sector remains out of the banking money, it would be damaging for the foreign investors also. The government is struggling to invite foreign investors without making the environment investment friendly.
Recently the foreign investment has increased (47pc increase in 4 months) but the amount was limited to $423 million reflecting the disappointing situation for the country as well as the government.
The State Bank’s report shows the monetary expansion in the first four months was much less than the previous year. The monetary expansion increased by 0.58pc compared to 2.16pc during the same period last year. Private sector is considered engine for the economic growth. The government claims 4pc GDP growth in FY14 which means the situation has deteriorated in the FY15 as its participation has significantly declined.
Published in Dawn, November 19th , 2014
