KARACHI: Despite higher economic growth expectations for FY18, macro indicators like domestic and foreign investments and private sector credit off-take do not support the government’s claims.

State Bank of Pakistan’s Monetary Policy Information Compendium for May 2018 showed that borrowing for working capital accounted for the bulk of the overall figures – indicating the short term nature of private sector borrowing.

Out of total loans of Rs482 billion for private sector businesses during July-April FY18, about Rs291bn were taken for short term working capital. The sector borrowed over 60 per cent for working capital during the period.

The private sector showed positive signs in FY17 as the borrowing for fixed investment rose to 365.9bn and was anticipated as the beginning of a healthy growth trajectory. It is believed that the fixed investment would further increase in coming years.

Most private sector borrowing this year for working capital needs, not fixed investment

However, serious political uncertainty emerged after the ouster of Prime Minister during 2017-18 through a court order which forced domestic investors to adopt a cautious approach, reversing the borrowing trend for fixed investments.

The borrowing for fixed investment during FY18 was Rs191bn compared to 196bn in the same period of last fiscal year. While the drop is not significant, the new figure is well below the expectations of greater participation of private sector.

The details further show that in manufacturing, only textiles borrowed more than last year. The sector’s overall borrowing declined to Rs294bn against Rs313bn in the corresponding period of last year.

According to the SBP compendium, the textile sector borrowed Rs123bn compared to Rs93bn in the same period of last year. The sector noted a 13 per cent increase in the exports with the support of huge incentives offered by the government.

On the other hand, a sharp decline was observed in the borrowing of food products and beverages, falling to just Rs91bn during first 10 months of 2017-18 from Rs141bn borrowed in the comparable period of last year.

Chemicals and products sector instead of borrowing, retired debts worth Rs48.6bn during the period under review against net borrowing of Rs14bn in same period of last year.

The wearing apparel and readymade garments’ borrowing also fell by 32pc to Rs10.5bn during the 10 months.

In the previous fiscal year, construction witnessed significant growth and succeeded to move allied industry like cement, iron, electrical products, etc. However, borrowing for the sector also dropped to Rs14.6bn from Rs24.6bn in the corresponding period of last fiscal year.

The publication also indicated that private sector investments in the economy have declined which could possibly hamper economic growth. Foreign investments which stood at just $2.2bn, higher by 2.4pc, remained focused on infrastructure and power sector.

Published in Dawn, May 30th, 2018