There is a particular stillness that settles over an economy not at the moment of crisis but long before it, a condition in which activity continues, institutions function, and numbers add up, yet ambition quietly contracts. In Pakistan, that stillness is most visible in the behaviour of credit. Businesses speak of hesitation rather than collapse, of margins thinning rather than disappearing, of plans deferred rather than abandoned. Investment slows, working capital tightens, and yet banks remain liquid, profitable, and composed, reporting stability that feels oddly disconnected from the texture of the economy around them. This divergence is often described as stagnation or paralysis, but that language misses the more uncomfortable truth. Credit has not disappeared. It has become selective. Finance still moves, but only where belief can be sustained, and belief itself has narrowed.
Over time, Pakistan’s financial system has reorganised itself around permanence rather than possibility. Fiscal pressure did not arrive as a temporary imbalance to be corrected through reform or growth; it hardened into a constant. Borrowing became continuous, rollovers routine, and horizons compressed. In such an environment, the state emerged not merely as a borrower but as the most legible presence in the market, offering clarity where the rest of the economy offered noise. Yield, liquidity, regulatory comfort, and administrative certainty aligned in a way few private borrowers could replicate. Banks responded not out of hostility toward enterprise, but out of fidelity to their own design. Institutions built to manage uncertainty will always gravitate toward coherence when it is consistently rewarded, and over time that gravitation ceases to feel like choice and begins to feel like inevitability.
This inevitability did not extinguish private credit; it reshaped it. What appears from a distance as stagnation reveals itself, on closer inspection, as uneven movement. Short-cycle lending tied to turnover, inventory, and trade has steadily weakened, retreating as demand became harder to forecast and margins thinner to defend. Working capital, which depends on rhythm and confidence, became episodic and then exceptional. At the same time, long-term lending has shown intermittent growth, not as a sign of renewed optimism but as evidence of delayed decisions finally crossing a threshold of necessity. Capex borrowing survives where postponement has already done its damage, where firms invest not because they expect expansion, but because they can no longer afford not to. Credit has not vanished across the board; it has become conditional, lopsided, and anchored to duration rather than demand.
This pattern matters because it signals not a shortage of liquidity, but a shortage of short-term conviction. Working capital depends on belief in continuity, in velocity, in a future that resembles the recent past. When that belief thins, short-cycle credit retreats quickly. Long-term credit, by contrast, can survive in pockets precisely because it is driven by compulsion rather than confidence. What remains is not a healthy credit cycle, but a distorted one, skewed toward obligation and away from opportunity. Finance has not stopped functioning; it has narrowed the range of futures it is willing to acknowledge.
As this logic settled in, banking changed in ways subtle enough to escape announcement but deep enough to reshape behaviour. Balance sheets stopped implying futures and began mirroring policy conditions. Internal prestige shifted away from those who interpreted sectors and firms and toward those who managed exposure, timing, and duration. Lending did not disappear, but it hardened. Short-cycle risk became unattractive, while long-horizon lending survived only where collateral, guarantees, or inevitability compensated for uncertainty. Finance did not become hostile to growth; it simply learned that growth was no longer the thing it was being paid to anticipate.
Digitisation entered this environment without friction and without rebellion precisely because it demanded nothing of belief. Faster payments, hardened identity systems, automated compliance, and real-time settlement reduced error and compressed cost, but they did not revive appetite. They made selectivity easier to execute at scale. Capital moved more cleanly, but not more patiently. The infrastructure grew sharper, not braver. Technology professionalised restraint, allowing the system to express its preferences with greater efficiency and less noise. Credit did not broaden; it became cleaner in its exclusions.
This is why the language of modernisation so often feels unmoored from experience. Activity accelerates, interfaces improve, and visibility deepens, yet commitment remains scarce. Liquidity circulates briskly but settles only where compulsion replaces confidence. What appears as motion is often rotation, money moving through narrow channels while large sections of the economy remain untouched. The system excels at flow, not at belief.
For private enterprise, this condition is suffocating in ways that resist easy quantification. Firms do not struggle to access credit because banks are indifferent, but because the economy they operate within remains resistant to being underwritten at scale. Informality persists as a rational adaptation to volatility. Cash flows fluctuate. Documentation fragments. Political exposure is diffuse and unpredictable. Legal resolution stretches beyond useful horizons. These are not moral failures, but they transform lending from calculation into interpretation, from pricing into judgment. In such an environment, short-term credit becomes an act of faith few institutions are trained to make, while long-term credit survives only where delay is no longer possible.
The asymmetry sharpens during periods of monetary tightening. High rates compress demand and thin margins, weakening the very turnover that short-cycle credit depends on. Working capital dries up first, trade finance retreats, inventory lines unwind, even as banks remain insulated through sovereign exposure. Finance does not extract aggressively; it shelters itself efficiently. Stability is preserved, but momentum dissipates. Over time, this dissipation begins to feel structural rather than cyclical.
What makes this state of affairs harder to confront is the absence of villains. Banks comply. Regulators enforce prudence. The state borrows because it must. Each actor behaves rationally within its constraints. And yet the aggregate outcome is a financial system that no longer performs its oldest economic function: converting surplus into productive risk across the breadth of the economy. Instead, it allocates belief selectively, lending where necessity overwhelms doubt and withholding where confidence cannot be priced.
Repeated appeals for banks to lend more fail because they misdiagnose the problem. Lending is not suppressed by temperament or imagination; it is suppressed by belief. Short-term credit requires confidence in continuity, and continuity has become fragile. Long-term credit survives only where postponement has already extracted its cost. Without mechanisms that deliberately relocate risk away from balance sheets, exhortation dissolves into noise. The system has been trained, patiently and consistently, to reward survival over projection.
The longer-term cost of this training is not immediately visible in quarterly results, but it accumulates quietly. Credit skills erode. Familiarity with operating businesses thins. Institutions become fluent in policy cycles while losing fluency in production cycles. An economy that is only selectively underwritten gradually becomes unfamiliar even to those meant to finance it. The future does not disappear; it becomes unreadable in the short term and unavoidable only in the long.
What emerges is a country that becomes very good at managing itself in the present tense. Shocks are absorbed. Crises are deferred. Collapse is postponed. But belief narrows. Finance does not stop functioning; it stops imagining broadly. Growth does not end abruptly; it becomes selective, delayed, and increasingly accidental.
Finance, in this form, is not broken. It is obedient. It responds precisely to the signals it receives. If the economy wishes to be financed differently, it must first become something that can be believed in across time horizons, not merely endured. Until then, capital will continue to move cautiously, commit reluctantly, and wait.
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