KARACHI: Financing for fixed investment in almost all sectors of the economy is on the rise after a decade of stagnation, according to the Statistical Bulletin for February issued by the State Bank of Pakistan (SBP) on Saturday.

It showed that financing for fixed investment increased each month during the first half of 2016-17.

Banks were reluctant to finance fixed investment for almost a decade because of higher risks involved. Instead, debt instruments of the federal government remained the favourite investment avenue for banks.

Banking analysts attribute the recent change to the low interest rate scenario, which is hurting banks’ income. Returns on government papers have been falling for more than a year while the government keeps relying on the SBP to meet its borrowing needs.

According to the SBP report, fixed investment for the manufacturing sector amounted to Rs673.2 billion at the end of December 2016 after rising by Rs71.3bn since July.

Recently, SBP Governor Ashraf Mahmood Wathra expressed his satisfaction that financing for fixed investment has been increasing and called it encouraging for economic growth. The energy sector received the second highest amount of financing for fixed investment during the period under review. Collective financing for fixed investment in electricity, gas and water supply rose to Rs217.5bn in December 2016 after adding Rs15.2bn since July.

Another SBP report said that banks’ advances increased 144 per cent in 2016, which indicates higher growth in the economy. Higher fixed investment is a sign of growing economic activities that also create greater demand for liquidity.

The government is ensuring a higher flow of money into the economy by not using banking liquidity. It has been borrowing money from the central bank instead.

Financing for fixed investment in transport, storage and communications was Rs140bn at the end of December 2016 against Rs138bn at the end of July. Data shows the sector also received substantial advances from banks throughout 2016.

The booming construction industry attracted significant advances from banks while fixed investment in the sector also rose to Rs77bn by the end of December 2016 compared to Rs64bn in July.

The construction industry offers a huge investment potential. Growth in the construction industry mobilises at least 42 allied industries, which results in overall economic growth. The country is short of about 7m housing units, which means a massive investment opportunity exists in this sector.

Chinese investors have started showing interest in the property and construction industry in Pakistan, which may force local players to increase investments in this sector.

Financing for fixed investment in the services sector amounted to Rs47.7bn at the end of December 2016 compared to Rs41.5bn in July.

Published in Dawn February 5th, 2017