Credit crunch

Although the State Bank of Pakistan’s policy interest rate was substantially reduced from 22 per cent in mid-2024 to 11 per cent by April 2025, this monetary easing has failed to translate into increased credit flows to the private sector. This divergence highlights that low interest rates alone cannot revive borrowing and investment in an environment riddled with structural and political uncertainties. Bank advances, encompassing loans to consumers, businesses, and farmers, are the arteries through which economic activity flows.

The significant contraction in these advances signals both a reluctance on the part of banks to extend credit and a cautious stance by borrowers amid an unstable economic and political climate. To overcome these challenges, policymakers must adopt a comprehensive approach that goes beyond interest rate cuts. Political stability, inflation control, transparent regulation and supportive fiscal policies are essential to rebuild confidence among lenders and borrowers alike.

Majid Burfat

Karachi