KARACHI:The private sector int he country has been negatively impacted by the rising interest rates and the uncertain economic and political conditions. As a result, they are forced to borrow money at exorbitant rates to keep their businesses running or pursue expansion plans. This has led to a significant decrease in private sector borrowings, with a drop of 74.3% to Rs266.4 billion during the first nine months of the current fiscal year, compared to Rs1,036.6 billion during the same period last year.
The general perception, that the International Monetary Fund (IMF) is dictating these actions, has resulted in the government picking up Rs2.2 trillion against the target of Rs900bn, despite the maturity amount being less than the auction target. Banks have invested over Rs15tr in the Pakistan Investment Bonds (PIBs) and Rs6tr in T-bills, generating high profits each year.
However, the situation has worsened due to the State Bank of Pakistan’s (SBP) increase in interest rates by 300 basis points in March and 100bps in April, taking the policy rate to a record 21pc. The unprecedented Consumer Price Index (CPI)-based inflation at 35.5pc in March has also increased the risk for investors, making it impossible for banks to invest money in profit-making ventures.
Financial experts say the government is borrowing more than the auction target to meet its rising expenditures, despite strict measures demanded by the IMF. In light of the still-rising inflation, investing money in costly ventures for profit-making appears impossible for bankers. The massive interest rate hikes with short intervals have only made money the costliest ever, and the strategy has failed to achieve the core objective of taming inflation.
