KARACHI: Nearly 100 days into the current fiscal year (FY27), the private sector has continued to retire bank debt rather than borrow, reflecting weak investment activity that could constrain economic growth.
The latest data released by the State Bank of Pakistan (SBP) on Monday presents a discouraging picture, with businesses showing little appetite for bank financing, a key source of investment and economic expansion. The figures show that the private sector has been repaying loans instead of taking out new ones, indicating that the situation remains largely unchanged from the previous fiscal year.
In FY26, the economy grew by 3.7 per cent, a rate considered insufficient to generate adequate employment, reduce poverty and boost revenue collection.
During the first 100 days of FY27, from July 1 to October 9, the private sector retired a net Rs91.8 billion in debt, compared with Rs31.7bn during the corresponding period of FY26.
Private sector retires net Rs91.8bn in first 100 days of current fiscal year
Further details show that Islamic banking branches of conventional banks were the only category to record net lending to the private sector during the period, extending Rs138.6bn in loans against Rs63.4bn in the same period last year.
However, Islamic banks recorded net debt retirement of Rs107.8bn, compared with Rs38bn during the corresponding period of the previous fiscal year. This trend also raises questions about the sector’s reliance on government Sukuk for investment and returns.
Conventional banks also recorded a weaker performance, with net debt retirement reaching Rs122.6bn by October 9, compared with Rs57bn during the same period last year. Despite weak investment activity, the previous fiscal year saw an improvement in private-sector borrowing, with businesses borrowing Rs1.46 trillion over the entire FY26.
For the past three years, the government has struggled to lift economic growth above 3.5 to 3.7pc. However, domestic economic uncertainty and an unfavourable regional and international environment continue to weigh on the outlook.
Regional conflict has pushed up oil prices, adding to the pressure on an import-dependent economy such as Pakistan’s. The turmoil has also raised concerns about the jobs of millions of Pakistanis working in Gulf countries, which sent $41.5bn in remittances during FY26. Pakistan is targeting $44bn in remittances for FY27.
Escalating tensions involving Saudi Arabia, Yemen and Iran, along with threats of further military action by the US against Iran, have added to uncertainty over the regional economic outlook.
“How can a domestic investor take the risk of expanding operations when consumers’ purchasing power has declined, export markets are shrinking amid turmoil in the Gulf, and inflation is rising in the United States and Europe?” said Amir Aziz, a manufacturer and exporter of textile made-ups. Media reports suggest that the prime minister’s housing loan scheme has yet to deliver the expected results in stimulating the construction sector, which supports at least 40 allied industries.
Published in Dawn, October 20th, 2026
