KARACHI: The private sector’s credit off-take witnessed a record increase of over five times in the first half of the current fiscal year compared to the same period of the last year, suggesting the country may achieve the 5 per cent GDP growth target on the back of higher economic activities.

The State Bank of Pakistan’s (SBP) latest data showed the private sector borrowing jumped by 508pc to Rs715.7 billion in the July-December period against Rs117.7bn in the same period of FY21.

The country achieved an economic growth rate of 3.9pc in FY21 despite low credit off-take by the private sector which increased in the 2nd half and the total borrowings stood at Rs766.2bn in 2020-21.

Despite many hurdles including a serious gas crisis, petroleum price hike, the rupee devaluation and the increasing interest rates, the private sector’s surging borrowings are a clear sign of growing economic activities.

The government officially announced that the country’s GDP expanded by 3.9pc in FY21 and the State Bank said it was backed by robust industrial growth and higher than expected agriculture output.

In the previous monetary policy statement announced on Dec 14, 2021, the central bank said since mid of November 2021, the key indicators have remained robust while inflation and the trade deficit have risen further due to both high global prices and domestic economic growth.

The State Bank increased the interest rate to 9.75pc in December chasing the headline inflation which was 11.5pc in November 2021. The SBP said the core inflation in urban and rural areas also rose to 7.6pc and 8.2pc, respectively, reflecting domestic demand growth.

The details showed that the conventional banks played key role in the growth of private sector credit off-take. The private sector borrowing from conventional banks rose to Rs498bn from Rs42.6bn in the same period of last year, an increase of Rs455.4bn or 1,000pc.

The borrowings through the Islamic banks almost doubled to Rs84.7bn in 1HFY22 against Rs43bn in the same period last year.

The Islamic banking branches of commercial banks also showed very high credit to the private sector as it reached Rs132.7bn in the first half of the current fiscal compared to Rs33.9bn.

Bankers said if the borrowings by the private sector maintain the same pace in the 2nd half of the current fiscal year, it would bring higher economic growth with much higher inflation. Bankers believe the State Bank is increasing its policy rate to check the inflationary pressures.

Published in Dawn, January 9th, 2022