KARACHI: The private sector again showed reluctance in borrowing from banks, despite its better performance in the previous financial year.
The latest data released by the State Bank on Monday showed that the private sector has started retiring debt instead of fresh borrowing from banks.
The net credit to the private sector since July 1 to August 22 was negative Rs68 billion, a sharp contrast with the trend in the second half (January-June) of FY14 when it was Rs384bn.
The last fiscal year was a turning point for the private sector credit off-take as it was negative Rs19bn in FY13. However, this trend has failed to continue.
Apart from other reasons like sluggish economic growth and poor economic policies, the recently developed political turmoil also played a negative role. Though the uncertainty on political front has been rising for several months, the beginning of August proved fatal.
Despite much better credit off-take by the private sector in FY14, the private sector investment remained dull.
Official reports showed that most of the money borrowed by the private sector in FY14 was utilised for working capital which could not generate visible economic activities.
While trade and industry people want political impasse to end, some politicians and economic managers have been warning that economy will suffer severely if the crisis persists.
Exporters say they are not getting fresh orders from abroad. Importers are also shaky due to unpredictable exchange rate. During the last 12 days, the currency market witnessed sharp fluctuations in the dollar prices as it crossed Rs103.30, then fell back to Rs101, and again crossed Rs102 on Monday.
Pakistan’s August CPI (Consumer Price Index) has eased to seven per cent versus 7.9pc in July and 8.55pc in August 2013. “The reading is lowest in last 14 months,” said a Topline Securities research report issued on Monday.
While the low inflation is a good sign for the economy, it also shows the low economic activities which means less money is flowing towards the economy.
The State Bank also reported that monetary expansion during one-and-a-half month of this fiscal year was 50pc of what it was during the year-ago period.
The monetary expansion from July 1 to August 22 was minus Rs184bn against minus Rs84bn a year earlier. Currency in circulation was just Rs71bn compared to Rs121bn.