Private sector borrowing jumps 196pc in FY21

KARACHI: Credit offtake by the private sector from the banking channel increased by 196 per cent during the current fiscal year indicating the rapid increase of economic activities compared to the previous year.

According to the State Bank’s latest data issued on Tuesday, the private sector borrowed Rs489.4 billion during FY21 (up to June 18) against Rs165.3bn in the same period of FY20 – an increase of Rs324bn or 196pc.

Overall, FY20 was largely dominated by the Covid-19 pandemic impact which slowed down economic activities. The SBP, in collaboration with the federal government, pumped huge liquidity into different sectors, including health sector, to support the economy.

Despite significant recovery this year, it could not reach the level achieved in FY19 (before the emergence of Covid-19) as the private sector had borrowed Rs693.5bn.

The SBP data shows that conventional banks played a key role in the recovery of lending to private sector as it extended loans worth Rs184bn against debt retirement of Rs4.4bn in the same period of last fiscal year. In FY19 (full year), conventional banks’ lending to private sector was Rs486bn indicating that the participation of private sector in the economy is still much below the growth prior to the pandemic. The government claimed that the estimated economic growth rate would be 3.94pc for the current financial year. The announcement supported by the large scale growth rate and higher exports and imports, attracted criticism and doubts from opposition political parties. However, the government and the SBP remained behind growth rate of 3.94pc for FY21.

Islamic banks’ credit to the private sector increased to Rs134bn from Rs34bn in the previous fiscal year. Islamic Banking branches of conventional banks rose to Rs171.2bn in the period under review compared to Rs36bn in FY20.

The data also showed that government borrowing for budgetary support declined by 35pc during FY21 (up to June 18) compared to the same period in FY20. The federal government’s borrowing for budgetary support remained at Rs1,382bn compared to Rs2,151bn of the previous fiscal year. Low borrowing for budgetary support means the fiscal deficit has dropped this year.

Banking sources said large scale borrowing was made by the export sector during the current financial year as exports have been increasing.