KARACHI: The private sector borrowed Rs175 billion from the banking sector during the first quarter of this fiscal year reflecting improved economic activities when compared with a net debt retirement in the same period last year.
However, the growth in credit offtake looks stagnant after a jump in mid-September mainly because of growing problem of higher input prices. All eyes are on growth since commodity price hikes have shattered the confidence of investors and traders while they created anger among the common people.
The State Bank of Pakistan (SBP) increased its key interest rate by 25 basis points on Sept 20 after maintaining it at 7pc for more than a year. The banks were expecting that the private sector would rush to borrow more with anticipation that the money could be costlier in the coming weeks or months.
A massive borrowing of Rs172bn in a short period of Sept 3-17 by the private sector against a net debt retirement of Rs133bn doesn’t look smooth. In the entire July-September quarter the borrowing reached Rs175.8bn against a net debt repayment of Rs123bn during the same quarter of FY21.
However, the increasing oil, gas and coal prices in the international as well as domestic markets are making it difficult for the manufacturers to produce competitive products. The cheaper smuggled products from China, India, Iran and Bangladesh have already got significant space in the domestic markets.
The central bank hinted that the rate could go further high since the real interest rate was still negative. It said that its stance was still appropriately supportive of growth, with real interest rates remaining negative on a forward-looking basis, adding that it expected the monetary policy to remain accommodative in the near term, with a possible further gradual tapering of stimulus to achieve mildly positive real interest rates over time.
Though the inflation number still lower than 13.25pc witnessed in March 2020, the higher commodity prices have devastated the purchasing power of the common man.
The latest data shows that the Large Scale Manufacturing expanded by a robust 12.7pcin August but it was mainly on account of extra growth in auto and cement sectors.
The cement sector could see a massive price hike due to imported coal prices which gone up to $277 per tonne in October on the international market compared to $117 per tonne two months before.
“If the oil, gas and coal prices remain high in coming months, the manufacturers would not be able to keep functioning normal. The low borrowing reflects this situation,” said a senior banker.
The private sector borrowing from conventional bank branches rose to Rs94bn in 1QFY22 against a net debt retirement of Rs143bn in the same quarter last year followed by Rs26.9bn from Islamic banks against Rs5bn in the same period last year.
The borrowing from Islamic Banking branches of conventional banks also increased to Rs54.7bn compared to Rs15.4bn in the same period of FY21.
Published in Dawn, October 17th, 2021