Massive loans taken for business expansion in outgoing fiscal year. PHOTO: FILE
Notwithstanding the cynicism expressed by many economists, the country’s private sector took up massive loans to expand their businesses in the outgoing fiscal year, according to the Economic Survey of Pakistan released on Monday.
Banks’ credit to the private sector in 2013-14 (until May 9) shot up to Rs296 billion as opposed to a negative Rs19 billion in 2012-13.
Private-sector credit growth is considered a true reflection of the sentiments of the country’s business community. Companies borrow from the banking sector and invest in expanding their operations only if they are bullish on the economy and expect a revival going forward.
Credit to the private sector touched a six-year high in the outgoing fiscal year. It remained Rs217 billion, Rs122 billion, Rs113 billion and Rs20 billion in 2011-12, 2010-11, 2009-10 and 2008-09, respectively.
Speaking to The Express Tribune, BMA Capital’s Director of Research Azfer Naseem said the massive surge in the private-sector credit symbolises the confidence that businesses have in the government. “Working capital needs of private businesses have gone up massively while their long-term investment is gradually increasing,” he said.
Overall, money supply in the economy has increased by 7.3% in the outgoing fiscal year (until May 9) as opposed to the increase of 15.9% recorded in 2012-13.
The expansion in broad money – commonly referred to as M2 – between July 1 and May 9 remained Rs649 billion, which is substantially lower than the flows of Rs1.2 trillion recorded in the last fiscal year.
Besides the overall positive sentiment regarding the revival of the economy, another reason for increased credit availability for the private sector is the receding government borrowings for budgetary support.
In line with the agreement with the International Monetary Fund (IMF), the government tried to reduce its borrowings from the central bank as well as scheduled banks in the outgoing fiscal year. Government borrowings for budgetary support from the State Bank of Pakistan and scheduled banks remained Rs265 billion until May 9. The corresponding figure for 2012-13 amounted to Rs1.4 trillion.
“The government attempted to control its expenses in order to meet its fiscal deficit target as per the agreement with the IMF. Coupled with improved inflows from the spectrum auction, Eurobond issue and multilateral donors, it helped reduce borrowings for budgetary support substantially,” Naseem said.
Published in The Express Tribune, June 3rd, 2014.
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