Pakistan’s economy looking for lubricants

Pakistan’s economy is in desperate search for a lubricant, as the latest data reveals that credit to private sector nearly zeroed in the first eleven months of fiscal year 2008 –to 2009 (it is actually in negative territory as per weekly data released by SBP), as the government borrowing crowded out private sector credit off-take in an attempt to straighten its books with the central bank. A closer look reveals that farming and forestry sector, on which the government quite heavily needs to rely on, actually paid back PkRs1.9 billion (US$23.18 million) of its debt in 11MFY09, as against borrowings of PkRs8.4 billion (US$102.49 million) in the year ago period. One might question that since when debt repayment became such a bad omen – but when contemporary economies need a wheel, credit is their major driver. This, thankfully, at least comes in line with the government’s efforts to produce more electricity – but one should be mindful that the figures also partly include loans taken for generators and UPS’s etc. During the period, consumer financing tanked sharply as well, as higher interest rate regime deterred clean consumers to take new loans, while recessionary fear of low future earnings compelled bankers to virtual halt on fresh disbursement, if any. (July 4, 2009)