Private sector credit offtake remains weak

Karachi has failed to break free from an investment-averse atmosphere, as evidenced by the private sector credit offtake during the first quarter of the current fiscal year, according to data from the State Bank. In the first two and a half months of the fiscal year, the private sector retired a total of Rs364.5 billion in debt, compared to Rs170 billion in the same period last year.

A similar situation was observed during the first quarter of the previous fiscal year, but it improved by the end of the year when total private sector borrowing reached Rs1.4 trillion. Despite this increase, there was little evidence of long-term investment in trade and industry. The economy grew by 3.7pc in fiscal year 2026, with the Asian Development Bank predicting a similar growth rate for fiscal year 2027.

The subdued private sector participation has kept economic growth below the 4pc mark over the past three years. Investors cite high interest rates as a major obstacle to their participation in new investments. The government has introduced the Apna Ghar scheme to boost economic activity, while the prime minister has encouraged banks to participate more actively in reviving the construction industry, which supports over 40 allied industries.

Furthermore, land prices in Pakistan have risen following the Gulf war, as funds that previously went into property purchases in Dubai are now flowing into the domestic market. Debt retirement by conventional banks during the period amounted to Rs194 billion, compared to Rs76.4 billion in the previous year. Islamic banks recorded debt retirement of Rs165 billion against Rs139 billion last year, while Islamic banking branches of conventional banks had debt retirement of Rs5.5 billion against net borrowing of Rs45 billion in the corresponding period.

The private sector credit offtake in fiscal year 2026 was stronger than in the preceding year, with lending by conventional banks standing at Rs290.7 billion, compared to Rs405 billion in the previous year. Lending by Islamic banks was Rs339 billion, compared to Rs518 billion, while Islamic banking branches of conventional banks extended Rs833 billion in FY26 against Rs158 billion in the preceding year.