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Credit to private sector posts growth of 42.7pc

ISLAMABAD: The overall private sector credit observed expansion of Rs454.5 billion during the period July 01-April 30, FY2021 against Rs318.5 billion last year, and posted growth of 42.7 percent in flow terms, says the Economic Survey 2020-21.

During FY2021, host of positive factors played significant role in credit expansion: accommodative policy environment, number ofconcessionary refinancing schemes introduced by SBP, overall improved business environment, negative real interest rate and significant growth in LSM. Overall credit witnessed expansion of Rs441.5 billion (growth of 7.1 percent) during July-March, FY2021 compared to Rs204.9 billion (growth of 3.4 percent) last year.

However, the credit to private sector reduced significantly to Rs196.4 billion in FY2020 as compared to Rs693.5 billion in FY2019. Private sector credit plummeted in FY2020 on account of high cost of borrowing, surplus inventories, low industrial production, business closures due to COVID related smart lockdown strategy, slow economic activities and uncertainty about COVID trajectory.

During fourth quarter of FY2020, the SBP announced a number of concessionary refinancing schemes, despite this, net addition in the outstanding amount of credit is not large and higher net retirement has been observed, thus overall credit remained decelerated during FY2020.

However, in July-April period of FY2021, loans to private sector businesses received 63 percent share of total credit and stood at Rs280 billion. Sectors which received major share of total loans included manufacturing, which received 58.5 percent share of total loans (Rs163.8 billion), of which textile 13.5 percent (Rs37.9 billion) followed by electricity, gas steam and air condition supply 20.4 percent (Rs57.0 billion), wholesale and retail trade 4.9 percent (Rs13.6 billion), construction 3.4 percent (Rs8.9 billion) and water supply, sewerage, waste management and remediation activities 2.5 percent (Rs7.0 billion). Quarter-wise distribution revealed that private sector credit observed net retirement during first quarter on account of higher retirement under working capital loans on the back of sales tax refunds by the government, debt relief measures (loan deferment and restructuring), availability of surplus carry-over stocks and muted input costs helped businesses in retiring their short-term loans.

During second and third quarter of CFY, considerable higher credit off-take has been observed which more than offset the net loan retirements in the first quarter. Higher credit demand mainly driven for fixed investment loans under subsidised long term finance facility (LTFF) and temporary economic refinance facility (TERF) reflects increase in economic activities.

Under LTFF and TERF schemes, loans disbursement increased to Rs110.4 billion during July-March, FY2021 as compared to Rs37 billion during corresponding period last year. Loans to manufacturing sector increased by Rs93.6 billion compared to Rs34.2 billion last year. Within Manufacturing, textile sector has availed Rs56.3 billion against Rs26.5 billion last year, to pursue capacity expansions and balancing, modernization and replacement (BMR) activities. Accordingly, import of textile machinery posted significant growth of 58.2 percent on YoY basis in March, 2021.