KARACHI: Private sector borrowing during the first four months of this fiscal year was 5.5 times more than the previous year’s figures despite higher interest rates and central bank’s estimates of an economic slowdown.

The latest data issued by the State Bank of Pakistan (SBP) shows that the private sector credit off-take jumped to Rs245 billion during July-Nov compared to just Rs44bn last year.

It is interesting to note that during the period under review, cost of financing has also increased significantly but did not have an adverse impact on borrowing. The SBP has increased rates twice – 100 basis points each time – pushing the interest rate to 8.5 per cent.

Pakistan was able to achieve 13-year high growth rate – 5.8pc – during the last fiscal year, however, the estimates have been revised downwards for the ongoing fiscal as government struggles to cap the fiscal and trade deficits. The widening twin deficits have hurt the overall economic environment.

The SBP in its annual report slashed the growth target downwards to 5pc from the previously set 6.2pc target as mentioned in the budget. The report highlighted low-cost financing as one of the key drivers behind higher growth.

During the previous fiscal year, private sector borrowing witnessed record jump reaching Rs775.5bn during the year.

One of the reasons for jump in private sector borrowing could be due to government’s approach for non-borrowing from scheduled banks. The government has so far retired Rs2.7 trillion compared to net borrowing of Rs205bn in the same period last year.

Published in Dawn, November 21st, 2018