Pakistan's rising volume of lending a positive sign

Dubai - Larger industrial output, better energy supply to spur economy

The latest trend of rising volume of commercial lending to the private sector coupled with larger industrial output and better energy supply and rising FDI inflows are now signalling a significant uptick of the Pakistani economy in FY-2017 that starts from July 1. Commercial banks' lending to the private sector rose by Rs352.3 billion so far in FY-16 as compared to Rs222.3 billion in the same period of FY-15, the latest statistics by Stat Bank of Pakistan (SBP) showed.
"A significant part of this credit was availed by the private sector businesses. There was a high credit  off-take in December 2015 which was enough to compensate for the lower cumulative flow during the earlier months of FY-16," the SBP said. The demand for the private sector credit was high due to lower cost of credit  and better market conditions. The cost of borrowing declined to six per cent - an all time low in last 12 years - as a result of SBP's easy money policy.
At the same time, there was a "high deposit growth, and a lower government budgetary borrowing," which created a surplus with the banks that was lent to the private sector. "The improvement in credit to the private sector over the previous year, primarily, was due to larger borrowing by the manufacturing sector, followed by commerce and trade, construction and electricity." 
The SBP also reported that with the exception of ship breaking which received Rs13.4 billion credit that was lower than the sectors past borrowing, the improvement in larger credits to other sector was broad-based. While credit for working capital and fixed investment categories, showed higher growth. But credit for trade financing was lower. One of the reasons for larger lending to the private sector was that government borrowing to cover its big budgetary deficit was lower than last year. In fact, government was funding its requirements by launching its longer - term investment bonds, rather than short-term and more expensive borrowing from the commercial banks which also had squeezed the bank credit for the private sector.
That covers the broad spectrum of  the commercial lending. Does it also indicate in which direction is the economy moving?
Another key factor for a potentially good omen for the economy to grow faster is expansion of the large-scale manufacturing (LSM) sector. Its output growth rose 4.35 per cent year-on-year in the first eight months July-February of FY-16. In February, 2016 alone the LSM sector growth was 2.83 per cent higher as compared to the like month of FY-15, according to the SBP report. The key sub-sectors which contributed to the LSM growth in the first eight months of FY-16 were: automobiles 27.67 per cent, fertiliser 16.95 per cent, chemicals 11.26 per cent, leather products 11.51 per cent, rubber products 11.64 per cent, and non-metallic mineral products 8.61 per cent.    
In the same period, iron and steel sector produced 19.76 per cent more billets and ingots. The capacity of the sector also expanded in this period in order to feed lager exports. The automobiles sector expanded as production of trucks rose 44.23 per cent, buses 77.54 per cent, cars and jeeps 37.10 per cent, light commercial vehicles (LCVs) 104.45 per cent, and motorcycles was up 17.1 per cent. However, tractor production was down 44.65 per cent.
In the electronics sector, production of air conditions rose 28.05 per cent, switch gear by 28.14 per cent, electric transformers 1.8 per cent, TV sets 1.74 per cent and storage batteries 2.89 per cent, besides various rises in production of other electronics.
"The shortage of energy, which has been eating up nearly two per cent of GDP annually, is now improving," Khawaja Mohammed Asif, Minister for Electricity and Natural Resources said.
"As a result, the industries will get more power this summer, and continue power supply will be kept up to ensure larger production. It will be possible as we expect availability from hydropower resources this year will improve supply to the industries." 
Khurrum Dastgir, Minister for Commerce, said: "We are all geared up to ensure larger exports this year, in view of the larger projected industrial output and products. We will especially make a good pitch for European Union as the global export target for the year has been raised by Prime Minister Nawaz Sharif to $35 billion, under the just approved three-year Export Trade Strategy Plan 2016-18."
Dastagir in his address to the "Trade-Related Technical Assistance Programme-II (TRTA-II) in Islamabad said: "Trade will become an engine of growth and prosperity for Pakistan. This programme will continue its support to small and medium sectors of Pakistan and will continue it in future as well."
Azmat Ali Ranjha, Secretary of TRTA-11 Programme, said: "This programme has supported  different initiatives of trade policy which are contributing ton improve the trade governance, and exports."
Federation of Pakistan Chambers of Commerce and Industry, meeting under its  chairman, Abdul Rauf Alam, this week, vowed "to make all out efforts to raise production of all industrial goods this year in order to improve supplies in the domestic market and push exports to the highest level, as targeted for this year." It also decided to take a trade delegation to Iran in order to step up the two-way trade between Islamabad and Tehran. According to another decision, it will make all efforts to raise the export of "halal" meat to all countries.
"In the global 'halal' market of $ 2.8 trillion annually, Pakistan's current share is just a meager 0.5 per cent. That should enlarge overall export volume," Alam said.
Views expressed by the author are his own and do not reflect the newspaper's policy.