Bank borrowing plunges 39 per cent in Pakistan as investors face uncertainty

New Delhi, Feb 25 (IANS) There has been a drastic decline in private investment in Pakistan’s economy despite a reduction in interest rates as businesses face an uncertain economic environment due to high energy costs, regulatory unpredictability, and high taxes, according to an article in the Pakistani media.

Data released by the State Bank of Pakistan showed that private sector bank borrowing plummeted by 39 per cent during the first seven months of FY2026, falling to Rs 666 billion from Rs 1,087 billion in the same period last year, despite a sharp reduction in the policy rate – from 22 per cent to 10.5 per cent within a year, the article in the The News International daily said.

“If interest rates were the decisive factor, borrowing should have surged. Instead, it collapsed. This disconnect exposes a deeper structural weakness. Businesses are avoiding borrowing because the environment in which that money must be deployed is uncertain, costly and unpredictable,” it stated.

The fundamental problem is that interest is only one cost among many. Pakistani industry continues to struggle with prohibitively high energy tariffs, inconsistent gas supply, rising logistics costs, regulatory unpredictability and an overburdened tax structure. When electricity prices are uncompetitive, raw material imports face delays and policies change mid-stream, even a single-digit interest rate cannot make an unviable business viable, the article pointed out.

Monetary easing also does little when demand itself is fragile. With purchasing power under pressure and exports constrained by competitiveness issues, businesses see limited incentive to expand capacity. Borrowing to produce more makes little sense if the market cannot absorb that production profitably, it stated.

Besides, investment decisions are based not only on today’s rates but on expectations of tomorrow. Businesses remain wary of policy reversals, sudden taxation measures and exchange-rate volatility. In such an environment, many prefer to deleverage, conserve cash, or delay expansion rather than take on new obligations, no matter how cheap the financing appears on paper, it pointed out.

The government has recently announced a relief package aimed at exporters and industry, which may support borrowing in the months ahead. However, isolated incentives cannot substitute for a coherent, long-term economic strategy. Pakistan’s history is replete with short-lived stimulus measures that delivered momentary relief but failed to produce sustained growth, the article observed.

–IANS

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