KARACHI — After three years of muted activity, Pakistan’s private sector has suddenly ramped up borrowing, drawing Rs806.3 billion from banks in the last fortnight of October alone.
Despite the policy rate dropping from 22 percent to 11 percent, businesses had remained cautious, seeking deeper rate cuts to bridge the gap between inflation and borrowing costs. Until recently, the real interest rate hovered around 8 percent, keeping private sector borrowing subdued.
However, a fresh surge in inflation, with the Consumer Price Index (CPI) climbing to 6.2 percent in October, appears to have prompted a shift in sentiment. Commercial banks, meanwhile, have been criticised by the State Bank of Pakistan (SBP) for over-investing in low-risk government securities, which offered easy profits while leaving private sector credit underfunded. The central bank has repeatedly urged lenders to extend more credit to businesses to boost economic growth and address persistent unemployment and poverty.
During the last 15 days of October, private sector borrowing swung from debt retirement to fresh credit demand. Between July and November 1 of FY26, bank lending to businesses far exceeded Rs66 billion recorded in the same period last year.
Addressing the 22nd Annual Excellence Awards Ceremony organised by CFA Society Pakistan, SBP Governor Jameel Ahmad highlighted the ongoing credit gap. “Bridging this gap requires continued improvements in capital market infrastructure, governance, alternative investment products, digital access, and streamlined procedures,” he said.
The past three years of private sector inactivity have been a significant drag on economic growth. The country’s economy grew by 2.6 percent in FY25, later revised to 3 percent, with total private sector borrowing reaching Rs1.081 trillion more than double the Rs513 billion recorded in FY24. In the first four months of FY26, conventional banks extended Rs344 billion in new credit, compared with Rs68 billion in debt retirement during the same period last year. Islamic banks lent Rs318.5 billion, up from Rs16.5 billion, while Islamic windows of conventional banks provided Rs143.7 billion, slightly below last year’s Rs151 billion.
