The fiscal year to date has been the best in the last five years so far as private sector off-take is concerned. But since the first half of FY17, growth in credit to private sector businesses have been slowing down.

According to data released by the State Bank of Pakistan (SBP), a host of sectors have been borrowing for their expansion and working capital needs. For example, spinning and weaving units of textile sector have been borrowing for their fixed investment needs under the LTFF schemes, which were offered at very attractive rates. As did some edible oil manufacturers for installation of extraction plants, whereas the sugar sector too borrowed for fixed investment to set up energy-efficient processing units to reduce operating costs.

Meanwhile, consumer financing has also saw a net expansion of Rs69 billion in 10MFY18, which contributes to higher demand of industrial products, especially of automobiles and construction-related sectors. According to SBP data, consumer finance for housing rose nearly 80 percent year-on-year to Rs16 billion in 10MFY18, whereas that for automobile rose 34 percent to Rs38 billion in the same period. Little wonder that cement and steel industries, as primary construction sectors, have also been investing in expansion plans, some players financing externally through banks others internally.

This credit expansionary trend was expected to continue in the next 12-18 months as the private sector continues to seek funding to meet the demands of a growing economy, especially those driven by CPEC investments. However, there are a few reasons why the growth so far will likely taper off.

The first is a natural pause in expansion; firms do not expand forever, which is why a slower cycle should be expected to ensue. Second, in Pakistan a lot of expansion through own-equity or internal sources of funding rather than tapping the capital market or bank loans window.

Third, anecdotal evidence suggests that due to political uncertainty in the months ahead, and concerns over external account, PKR’s parity amid FX reserve, businesses have paused their plans.

Lastly, until recently the availability of external funding reduced the government’s budgetary dependence on domestic sources. However, unlike the first half of FY17, when the government borrowed from the SBP and retired scheduled banks’ debt, government borrowing from scheduled banks have continue to grow.

That and the fact that interest rates have bottomed out, the demand for loans should be expected to slowdown.