Pakistan's private sector credit falls to 12% of GDP, well below regional peers: UNDP

Domestic credit to Pakistan's private sector fell to 12% of gross domestic product (GDP) in 2023, underscoring the country's limited access to business financing compared with regional economies, according to a United Nations Development Programme (UNDP) report.

World Bank data cited in the report showed that private sector credit declined from 16% of GDP in 2019 to 15% in 2021 and 12% in 2023.

The decline highlights weaknesses in Pakistan's financial system and its ability to channel financing toward businesses, potentially constraining private investment, productivity and job creation.

How does Pakistan compare with other South Asian economies?

Pakistan's private sector credit stood at just 15% of GDP in 2021, compared with 50% in India and 40% in Bangladesh. The South Asian average was 46%, according to the report, highlighting the significant gap in financing available to Pakistani businesses relative to the size of the economy.

Pakistan's ratio fell further to 12% in 2023. The regional comparison cited in the report uses 2021 figures, rather than figures from the same year.

Why does limited private sector credit matter?

Domestic credit allows businesses to finance their operations, purchase equipment and expand production.

Limited access to financing can restrict business expansion and investment, particularly for smaller firms that depend on formal credit to meet working capital needs.

Pakistan's low credit-to-GDP ratio suggests that its financial system provides comparatively limited financing to businesses relative to the size of the economy.

The report's findings highlight the need to address structural barriers to formal financing and strengthen the financial sector's ability to support private investment.

Improving access to credit could help businesses expand, create jobs and increase productivity, supporting more sustainable economic growth.