KARACHI: Thanks to historically low interest rates, private-sector borrowing jumped by 126 per cent in 2016-17.

The private sector borrowed Rs633 billion in 2016-17 against 280bn in the preceding fiscal year. Its breakdown showing the borrowing for working capital and fixed investment was not available for the entire fiscal year.

The latest report by the State Bank of Pakistan (SBP) covers the period from July 1, 2016 to June 23.In a recent report, the SBP said credit to the private sector fell sharply (as a percentage of GDP) 2009 onwards relative to peer countries.

The SBP said the low interest rate and benign business environment stimulated demand for credit by the private sector.

As much as 42pc of private-sector credit off-take for the first three quarters of the last fiscal year went into fixed investment. Loans for working capital still have a bigger share in overall credit off-take because of greater availability of raw materials like cotton and sugarcane.

Large-scale manufacturing showed better growth in 2016-17, creating more space for credit inflows through banking channels. LSM growth in July-April was 5.58pc compared to 3.85pc a year ago.

The SBP recently indicated that trade-related borrowing also went up during the last fiscal year, which helped accelerate private-sector credit off-take.

It said that in the light of historically low interest rates — combined with improvements in energy supply, law and order, business sentiments and overall macroeconomic stability – there is good reason to expect further expansion in private-sector credit off-take and resultant growth.

Banks enjoyed ample liquidity due to high deposit growth during the last fiscal year. The government did not borrow from scheduled banks while it accumulated Rs1.23 trillion through the SBP. Government borrowing from commercial banks amounted to Rs352bn during the last quarter of 2016-17.

But it was significantly less than last year’s borrowing of Rs1.34tr, leaving banks with lots of unutilised liquidity.

Banks had sufficient liquidity available for private-sector lending in 2016-17 because of high deposit mobilisation and low government borrowing from commercial banks. This left banks with the only option of extending credit to the private sector because the returns on Pakistan Investment Bonds also fell sharply in the last fiscal year.

Published in Dawn, July 15th, 2017