The remarkable 87 per cent plunge in bank advances to the private sector (during first five months of the ongoing fiscal) is exactly what should happen when the centre refuses to address its ridiculous addiction to cheap money. Expect the projected 4.2 per cent GDP growth target, unimpressive to begin with, to be compromised. Expect also increased unemployment to pressure an already depressed market. It’s the strangest of ironies. Despite being strangely decoupled from the lingering international downturn, we have achieved low savings, insignificant investment and high unemployment completely on our own. Still there are no signs of the government’s borrowing stopping anytime soon, making a joke of central bank autonomy and letting a precious opportunity to stimulate local and lure foreign investment go begging.
The banking sector’s position is no less passive. Just when they should have postured towards unprecedented efficiency, so their examples could lend weight to the PSE-privatisation argument, they have let risk-aversion have the better of them, at least for the time being. Instead of tending to the worrying NPL count, they probably figure the government’s dependence on borrowing could not have come at a better time for the private financial elite. From their point of view, lending to a hungry government obviously makes a lot more sense than betraying more fault-lines in their collective risk-management credentials. Yet their deliberate disconnect from the real economy bodes ill not just for eventual growth, but also for their own future.
Sooner or later, they will have to return to real lending. And sooner rather than later, private sector investment will have to be facilitated if any manner of growth is to be attained. But should we continue directionless, Islamabad will play host to a very different variety of politicians after the next poll.
