The rot of window dressing

The Pakistani government and banks are in a toxic relationship: the former has sort of an addiction to spending way more than it earns, which the latter is more than happy to feed off. At this point, both seem to have become pretty content with their incompetence and need each other to survive — for they know no other way. The government has no idea, or at least the guts, on how to increase its revenue base or bring more people into the tax net, so it needs domestic financial institutions to fund its extravaganza. Meanwhile, banks have become so dependent on riskless securities that they have forgotten to do anything else. Amidst all this toxicity, it’s the kids (the economy) who have to bear the consequence more than anyone else. One effect of this entire situation has been how Pakistan’s private sector credit offtake has plunged over the years to just around 15 per cent of the gross domestic product. This is well below other emerging markets, such as Egypt’s 27pc, Indonesia’s 37.7pc, Bangladesh’s 39.2pc, and the Philippines’ 52pc. There are very few categories of borrowers in Pakistan that get much (meaningful) credit. Unsurprisingly, textiles lead on this front as they rake in almost a fifth of all loans to private sector credit, while personal financing accounts for a somewhat similar share.