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Private Sector’s Credit Growth Slows Down Despite SBP Efforts

Private sector businesses with sufficient liquidity opted to reduce their debt burden, due to the economic contraction, in the past few months.

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State Bank of Pakistan’s (SBP) data showed that the private sector paid off around Rs. 15 billion to banks over the past five months.

From July 1 to December 4, this year, corporate entities paid back Rs. 14.979 billion to banks in addition to clearing loans of Rs. 79.22 billion, SBP data showed.


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This is also notable because, in previous years, an increase in debt has been witnessed in the second quarter of the fiscal year. However, this year, primarily because of the slowdown in economic activity, many businesses have opted not to make further investments.

This has caused commercial borrowing to go down, despite the attractive policy rates offered by the banking sector and the relief measures announced by the SBP.

M2 Money Supply, which may be understood as cash in hand, checking deposits, and other easily convertible sources of money, also showed a slight decrease during the past five months at 1.8 percent as compared to the same period last year at 1.9 percent.

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In layman’s terms, businesses and the general public kept fewer liquid money resources and cash in hand in the past five months, as compared to the previous year’s same period. This shows less confidence by the businesses in economic recovery and less willingness of the consumers to spend as well.

The central bank had taken several measures to keep credit growth sustainable and consumer spending moderate. These included the Rozgar Scheme offering concessionary loans for companies to maintain their salary payments, the Temporary Economic Refinance Facility (TERF) to counter impacts of COVID-19 lockdown, and the Refinance Facility to induce new investments and cover health-related expenditures.


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While the authorities were of the view that these schemes will maintain the credit momentum despite economic slowdown otherwise, the latest data shows that the private sector may have refused to give in.

While the year on year comparison in private sector credit growth does not seem to have been impacted severely, the month on month figures have shown a noticeable slowdown.

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