By Abdul Ghani

Private sector credit increased by Rs934.1 billion during July-March FY2025-26, reflecting improving business confidence, stronger economic activity and growing demand for financing across key sectors of the economy, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The sharp increase in private sector borrowing marks a significant improvement compared to recent years and highlights the gradual recovery of investment and business activity amid strengthening macroeconomic conditions.

According to the survey, the expansion in private sector credit was driven by higher demand for both working capital and fixed investment loans across major sectors of the economy. The improvement came alongside easing monetary conditions, stronger business sentiment and broad-based economic recovery.

The Ministry of Finance notes that improving macroeconomic stability played a major role in supporting credit growth during FY2025-26. Inflation remained largely contained during most of the fiscal year, the exchange rate stayed stable and fiscal consolidation reduced uncertainty in financial markets.

The survey highlights that Pakistan's economy grew by 3.7% during FY2025-26, compared with 3.18% in the previous fiscal year. Growth was supported by positive performance across agriculture, industry and services, creating stronger demand for business financing.

Industrial activity emerged as a major driver of credit demand. Large-scale manufacturing expanded by 6.11% during FY2025-26 after contracting in the previous year. Improved production levels, higher capacity utilization and stronger domestic demand encouraged businesses to seek additional financing for expansion and operational requirements.

The construction sector also recorded growth of 5.73%, increasing demand for financing for infrastructure, housing, and commercial projects. According to the survey, stronger activity in construction and manufacturing contributed to rising credit requirements across the economy.

The survey notes that the banking sector's ability to extend greater financing was supported by improved liquidity conditions and growth in broad money.

During July-March FY2025-26, broad money (M2) expanded by Rs2.74 trillion and recorded year-on-year growth of 15.4%. The increase was supported by growth in both net foreign assets and net domestic assets of the banking system.

Net foreign assets increased by Rs816.7 billion during the period, supported by improvements in the external sector, including stronger foreign exchange reserves and a broadly balanced current account position. Net domestic assets increased by Rs1.92 trillion.

According to the survey, private sector borrowing gained momentum partly because government borrowing requirements moderated significantly during FY2025-26.

Government borrowing for budgetary support amounted to Rs850.6 billion during July-March FY2025-26, substantially lower than Rs1.32 trillion recorded during the same period of the previous fiscal year. The reduction reflected improved fiscal performance and helped create greater space for private-sector financing.

The survey points out that fiscal consolidation contributed to a more balanced allocation of financial resources within the economy. The fiscal deficit narrowed to 0.7% of GDP during July-March FY2025-26, while the primary surplus increased to 3.2% of GDP.

According to the Ministry of Finance, improving credit availability is important for sustaining economic growth because it enables businesses to finance working capital requirements, invest in machinery and equipment, expand production and create employment opportunities.

The survey notes that stronger credit growth coincided with a 12.8% increase in private investment during FY2025-26, reflecting greater business confidence in future economic prospects.

The report also highlights improvements in external sector indicators, including workers' remittances of $30.3 billion, stronger foreign exchange reserves and a stable exchange rate, all of which contributed to a more supportive environment for economic activity and financial intermediation.

With private sector credit increasing by Rs934.1 billion during July-March FY2025-26, the banking sector played an important role in supporting business expansion and economic recovery, reflecting stronger confidence in Pakistan's improving macroeconomic environment.

Credit: INP-WealthPk