Banks’ loans to the private sector dropped from 5.3 percent of GDP to 1.2 percent in the last 20 years, as per the World Bank (WB) data showing credit trends from 2001 to 2020.
The WB is busy streamlining a picture of the current situation where the US dollar sells at around Rs. 180. The State Bank of Pakistan (SBP) has provided the relevant data on 2020-21 credit provision from the banking sector while the Ministry of Finance is firming up figures on this count for the July-December period of 2021.
The private loans disbursed in 2001 at 5.3 percent of the GDP helped the business community purchase dollar at Rs. 67-77 while the current rate of dollar stands at Rs. 178. The loan volume that was slashed to 1.2 percent of the GDP leaves investors in dire want of liquidity for business and equity for acquiring bank credit, according to market players.
This has happened in a financial year when the growth of the GDP slid from four percent to three percent and the Sales Tax rate climbed from an average of 12 percent to 17 percent.
The volume of the non-performing loans in this period has also increased from nine percent of the GDP to 9.1 percent, which is deterring the banking sector from extending credit on easy terms. The feasibility conditions for acquiring credit have been toughened and discourage equity-building and investment trends in the innovation-driven sectors.
The anti-investment environment leaves the large and medium scale investors to the restricted option of dealing in a safer and smaller-volume business activity like sale-purchase of gold, dollar, attractive property deals, and stocks that offer lower but safer gains.
Sources from the Ministry of Finance said that the most critical sectors like producing an export surplus of competitive quality and using the proceeds in foreign exchange for enhancing the operation of production lines remain ignored in this environment.
They added that this discouraging trend has been preventing new investors from engaging in the newly launched Public-Private Partnership deals for beefing up the state infrastructure financed at an average of over 500 billion rupees per annum during the past two decades.
They also pointed out that the credit slash of the private sector has also happened during these two decades on account of a growing policy rate from four percent to the current 8.5 percent. Only the government could avail of bank credit at the commercial and non-commercial loans at this rate of profit, which resulted in a situation where the private sector could neither acquire credit for their wholly-owned business nor for projects under the Public-Private Partnership regulations.