KARACHI: The private sector lending has slowed sharply, raising concerns over economic growth and revenue generation, both of which are already underperforming.

Despite a 1,000 basis point reduction in interest rates, neither borrowers nor banks are showing interest in long-term lending.

According to State Bank of Pakistan’s (SBP) data, banks’ lending to the private sector during this fiscal year has fallen to just Rs563 billion as of March 7, 2025, from Rs1.98 trillion at the end of December 2024 — a sharp decline within just over two months.

For the past three years, private sector credit gro­wth has been extremely poor and was evident in the negative impact on growth, which averaged just 1.7 per cent — well below the annual population growth rate of 2.4pc.

This stagnant growth is fuelling unemployment, with a United Nations Development Programme (UNDP) report from 2024 revealing that 47pc (95 million) of Pakistanis live below the poverty line.

The government set a GDP growth target of 2.5 to 3.5pc for FY25, but poor credit flows to trade and industry suggest economic activity remains weak, making the target increasingly difficult to achieve.

The country’s revenue collection has fallen short during the first eight months of FY25, reflecting low economic activity. If the government fails to meet its revenue targets, it will likely increase indirect taxes or resort to more borrowing from banks.

Published in Dawn, March 21st, 2025