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The first quarter of FY26 ended without any new private sector borrowing in Pakistan, highlighting the fragile state of the economy and the growing uncertainty impacting business confidence.
According to data released by the State Bank of Pakistan (SBP) on Monday, the private sector instead retired Rs297 billion in loans during July to September, compared to Rs18.5 billion retired in the same period of FY25. This reflects a significant slowdown in credit demand across industries.
In contrast, private sector borrowing in FY25 had surged past Rs1 trillion, showing a sharp rebound from the previous two years. Despite the increase in borrowing, overall economic performance remained sluggish, with GDP growth at 2.68 percent. The National Accounts Committee (NAC) later revised FY25 growth upward to 3.04 percent, citing a 5.66 percent expansion in the fourth quarter, a figure that independent economists have questioned.
Rising Uncertainty Continues to Weigh on Business Confidence
Experts believe that even with the reduced policy rate of 11 percent, businesses are hesitant to take on new loans due to persistent uncertainty. Political instability, rising terrorism in Khyber Pakhtunkhwa and Balochistan, and heightened border tensions with Afghanistan have further dampened investor confidence.
“We are seeing increasing uncertainty as Pakistan faces escalating border clashes with Afghanistan. If this continues, the private sector may avoid bank borrowing altogether this fiscal year,” said one industrialist. He added that many textile millers are shifting operations abroad, particularly to Bangladesh and even distant destinations like Mexico.
Despite weak private sector borrowing in Pakistan, the banking sector continues to report record profits driven by heavy government borrowing. Meanwhile, the Federal Board of Revenue (FBR) missed its revenue collection target for the first quarter of FY26 by about Rs199 billion. The shortfall was attributed to lower domestic sales tax and reduced utility-related revenues caused by business slowdowns, power outages, and increased reliance on solar energy.
