KARACHI: Bank advances to the private sector plunged by almost 87 per cent to Rs211 billion in FY23 against Rs1,612bn in the preceding fiscal year, reflecting the repercussion of record high interest rates and economic slowdown.

The State Bank’s latest data issued on Tuesday revealed that the private sector did not borrow to invest in expansion as most of the borrowing was meant for short-term working capital.

The entire fiscal year was marred with political and economic instability as a result the PMLN-led coalition government had to sharply trim its growth projection to a mere 0.29pc from the budgetary target of over 6pc for FY23.

The conventional banks provided Rs171bn to the private sector in FY23 compared to Rs971bn in FY22. Advances by Islamic banks to the private sector also dipped to Rs126bn against Rs239bn in the preceding fiscal year.

The Islamic branches of the conventional banks recorded a net debt repayment of Rs86bn against a borrowing of Rs401bn in 2021-22.

Financial sector experts believe that not only the investment environment was extremely poor but the banks were also reluctant to extend loans fearing high borrower debt default risks due to high-interest rates — the same obstacle discouraged the private sector to opt for financing amid unfavourable economic situation.

The government’s borrowing from banks for budgetary support was also much higher in 2022-23 compared to the previous year. The government borrowed Rs3,865bn for budgetary support compared to Rs3,133bn in FY22.

The currency circulation surged by 138pc to Rs1,576bn in FY23 compared to Rs662bn in the preceding year, reflecting unprecedented average inflation of around 30pc in the outgoing fiscal year.

Published in Dawn, July 26th, 2023