KARACHI: The persistent political and economic instability has shaken the confidence of the private sector as its net debt retirement swelled to Rs258 billion during the first quarter of FY24 against a meagre Rs697 million in the corresponding period last year.

Data released by the State Bank of Pakistan (SBP) on Wednesday indicated an extremely slow participation of the private sector, which is considered an engine for economic growth.

The sharp decline in economic growth from 6 per cent in FY22 to 0.3pc in FY23 reflected the erosion of private sector confidence in the economy.

The situation has yet not changed as the World Bank predicted 1.7pc growth for the current fiscal year a clear indication the private sector is no more a key player in economic growth.

The State Bank’s data indicates the entire baking system noted net retirement of debts by the private sector. The conventional banks which provided Rs167bn during the first quarter of FY23, noted a net debt retirement of Rs155bn in 1QFY24. The slowdown started in FY23 with poor bank advances to the private sector which brought the economic growth down to almost zero. The credit extended by the conventional banks in the entire FY23 was just Rs211bn compared to Rs1,612bn in FY22.

“The investor confidence in shaky political government and poor economic health has gone down to the lowest level while the unprecedented inflation with record electricity and petroleum prices crumbled the manufacturing and services sectors,” said a senior banker.

“The borrowing cost has gone up by more than 100pc during the last one and half years making it more difficult for the stakeholders to take risk for new ventures,” added the banker.

The Large-Scale Manufacturing (LSM) declined by 10.26pc in FY23 while it noted a year-on-year negative growth of 1.09pc in July FY24.

The Islamic banks which provided Rs126.5bn to the private sector in FY23 noted a net debt retirement of Rs77.5bn in the first quarter of the current fiscal year. During the same period of last fiscal year, the net retirement of debt was Rs17.5bn.

The Islamic branches of conventional banks did not perform well in FY23 while the latest data shows a net retirement of Rs25bn compared to Rs151bn in the same period of last fiscal year. During the entire FY23, the debt retirement was Rs86.4bn.

Budgetary borrowing

Meanwhile, the government borrowed Rs1,358bn for budgetary support during the first quarter of FY24 compared to Rs525bn in the same quarter last year to bridge its fiscal gap.

The IMF has been asking the government to reduce the fiscal gap and the government kept searching to increase its revenues.

Published in Dawn, October 5th, 2023