The recent surge in bank lending to state-run firms has raised eyebrows and concerns among financial analysts and experts. The figure of Rs282 billion given in the first 10 months of the current fiscal year is undeniably substantial, highlighting the growing dependence of state-run firms on commercial banks for funding. While some may argue that increased lending can stimulate economic growth and support public-sector initiatives, it is crucial to scrutinise this trend and evaluate its potential implications for the overall financial health of the economy.
The significant surge in bank lending to state-run firms raises questions about the government’s priorities and its approach to managing the economy. Continued lending indicates that these funds are not being utilised for genuine developmental needs, which should prompt the government to introduce regulatory measures to curtail such spending. A case in point is PIA that has seen no improvement, leading to further financial strain in times of economic uncertainty. Hence, an unchecked rise in lending poses a potential threat to financial stability. While banks play a vital role in providing credit to fuel economic growth, it is equally important to ensure prudent lending practices are in place. Excessive lending to underperforming firms, which often suffer from mismanagement, corruption and governance issues, is a huge gamble that continues to drain the exchequer. This will, in turn, erode confidence in the financial system, restrict funding availability for productive sectors and hamper economic progress. A shift in economic policies is desperately required.
It is imperative that the government and relevant authorities ensure that these loans are allocated based on merit, in a fair and transparent manner. Additionally, mechanisms for monitoring the utilisation of these funds and measuring the performance of state-run firms need to be robustly enforced to prevent misappropriation and inefficiency. Considering the precarious economic state of the country, the government must prioritise long-term financial stability.
Published in The Express Tribune, May 12th, 2023.
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