KARACHI, Oct 31: Private sector borrowing from banks fell drastically by over 41 per cent during July 1, 2005 to October 8, 2005 period reflecting a slowdown in economic activities which may turn achieving of GDP growth target a bit difficult.
The latest official data showed that the private sector borrowed only Rs40.859 billion during the period under review compared with Rs69.92 billion the same period last year.
Bankers attributed the slow outflow of credit to saturation in the major sectors like textile, auto industry and telecommunication.
However, analysts and economists said that the less credit to private sector would help the government to control inflation, which had touched double digit last year when the country’s GDP grew by 8.4 per cent.
Economists believed that the higher inflation could be a counterproductive and curtail the purchasing power of common man.
“This is why the government has cut down GDP growth target to seven per cent for the current fiscal,” said an analyst.
Analysts said that lower credit off-take by the private sector could hamper the government’s effort to achieve higher economic growth, keeping this in view the State Bank of Pakistan in its annul report also predicted a lower than target economic growth for the current fiscal.
Last year textile was the largest participant in the growth of large-scale manufacturing sector (LSM) and posted a 24.7 per cent growth to achieve the over all 15.6 per cent increase.
If the textile production slips, it would certainly hit the economic growth as the textile sector alone earns over 61 per cent exports proceeds for the country. The slow flow of credits toward auto sector could prove another hurdle in the growth of industrial sector as well as the over all economy.
However, economists pointed out that despite higher credit off-take, which reached over Rs700 billion in just couple of years, the investment-to-GDP ratio remained significantly low.
According to the SBP annual report despite the rise in nominal investment during the preceding three years, the investment-to-GDP ratio has continued to hover around 15.5 per cent in the last three years. Analysts said this ratio should be more than 20 per cent.
Along with the investment, the national savings to GDP ratio also declined significantly last year. During FY05 not only have private savings continued to decline, public savings have also declined. As a result, national savings dropped from the FY03 peak of 20.8 per cent of the GDP to 15.1 per cent of GDP in FY05.
A number of independent economists viewed the recent earthquake as catalyst for accelerating economic activity in the country that could improve the economic growth. However, some economists are of firm opinion that the earthquake would hit the economic growth because of higher government spending for 4 million displaced people, much lower than expected international aid from the world bodies and foreign countries, divergent of funds allocated for the Annual Development Plan and low availability of funds for on-going mega projects under the federal government.
