Pakistan witnesses decreased bank borrowing owing to inflation, declining purchasing power
As inflation rises and purchasing
power declines, Pakistan faces a significant economic challenge that demands
immediate attention from policymakers. The noticeable drop in bank borrowing
reflects the financial distress experienced by businesses and households alike.
Policy Advisor to the Islamabad
Chamber of Commerce and Industries (ICCI), Majid Shabbir, says inflation has reached its highest levels in decades. This surge is driven by a
mix of global commodity price hikes, supply chain disruptions, and domestic
economic policies.
“Consumer Price Index (CPI) has
shown consistent double-digit growth over the past year, eroding the purchasing
power of average Pakistani households. Essential commodities like food, fuel,
and utilities have seen sharp price increases, leading to reduced discretionary
spending,” Shabbir explained.
Read More Government
reduces borrowing from banks significantly
The economic strain is attributed to
both external and internal factors. Pakistan's heavy reliance on imports for
essential goods has made it vulnerable to global price fluctuations, while the
depreciation of the Pakistani rupee has further inflated import costs,
exacerbating inflationary pressures.
Businesses, particularly small and
medium-sized enterprises (SMEs), are also feeling the impact. Rising raw
material costs and a shrinking customer base have led many to scale back
operations or delay expansion, contributing to a significant decline in
corporate borrowing from banks.
Shabbir warned that if the current
economic challenges are not addressed promptly, they could have long-term
consequences, including stifled growth and increased unemployment. He
recommended structural reforms to enhance economic resilience, such as
diversifying exports, reducing import dependence, and fostering sustainable
domestic industries. Improving governance and cutting bureaucratic hurdles
could also create a more favorable business environment.
Read More Private
sector faces continued negative bank lending amid economic challenges
In response to inflation and
declining purchasing power, there has been a noticeable reduction in bank
borrowing across Pakistan. Data from the State Bank of Pakistan (SBP) indicates
a sharp decline in loans for vehicles, houses, and personal needs. In July
2024, vehicle purchase loans fell to Rs228 billion, down 20% from Rs285 billion
in July 2023. Similarly, housing loans decreased to Rs203 billion, a 4% drop
from the previous year. Overall consumer financing, including various personal
loans, fell by 6% annually, with a total volume of Rs802 billion in July 2024.
Source: The Nation