Private sector credit in Pakistan witnessed a significant slowdown during the first half of fiscal year 2025-26, according to data released by the State Bank of Pakistan (SBP). Between July 1, 2025, and January 16, 2026, banks extended Rs588.68 billion in loans to businesses, marking a year-on-year decline of approximately 57% compared to Rs1.37 trillion during the same period last year. The sharp reduction reflects continued caution among businesses in taking on new debt amid prevailing economic uncertainties and high financing costs.
Despite the decline, recent policy measures by the government and the SBP are expected to stimulate lending in the coming months. The federal government recently reduced the export refinance rate by 300 basis points to 4.5%, aiming to ease financing costs for exporters and related sectors. By lowering the cost of credit, authorities intend to support industrial activity, improve export competitiveness, and enhance liquidity for businesses engaged in international trade.
In addition to the export refinance rate adjustment, the SBP maintained the policy rate at 10.5% but cut the Cash Reserve Requirement (CRR) for banks from 6% to 5%. This reduction is expected to release around Rs300 billion into the banking system, providing banks with greater capacity to extend credit to the private sector. Economists and bankers anticipate that these measures could revive lending, particularly for large-scale manufacturing and export-oriented industries, in the second half of FY26.
Industry representatives welcomed the liquidity-enhancing steps but highlighted persistent structural challenges that continue to constrain growth. The Pakistan Hosiery Manufacturers and Exporters Association (PHMEA) noted that while the reduction in export financing costs is a positive development, high energy prices, elevated taxes, and regulatory hurdles continue to undermine competitiveness and limit expansion opportunities.
The association urged the government to further rationalise electricity tariffs and tax policies to enable exporters to compete more effectively with regional peers. They emphasized that sustainable export growth requires a combination of affordable credit, predictable energy costs, and a tax regime that supports investment and operational efficiency.
Bankers echoed similar concerns, emphasizing that while liquidity measures provide short-term relief, broader reforms in industrial and energy sectors are critical for sustained credit uptake. Analysts noted that reviving private sector lending is essential not only for boosting production and exports but also for generating employment and fostering economic stability.
Overall, the data underscores the cautious stance of businesses in the current economic climate while highlighting the potential impact of targeted monetary and fiscal interventions. If implemented effectively, the SBP’s CRR cut and reduced export refinance rate could provide the much-needed momentum to increase private sector credit, support industrial growth, and contribute to a broader economic recovery in FY26.
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