KARACHI, April 28, 2026 — The Institute of Cost and Management Accountants (ICMA) has highlighted a growing structural imbalance in Pakistan’s credit distribution, noting that while overall banking credit to the private sector is expanding, the manufacturing sector continues to remain underfinanced despite showing strong output growth.
In its latest ICMA Monetary Policy Statement (MPS) Review, the institute said that credit flows to agriculture, manufacturing, and services are increasing, but the allocation does not align with sectoral performance, particularly in manufacturing where output growth remains strong at around 5–7% in certain periods, yet credit support remains weak.
ICMA identified this mismatch as a key constraint on industrial expansion, productivity growth, and long-term economic stability, warning that the issue is not the availability of credit but its distribution across sectors.
The State Bank of Pakistan (SBP), in its latest Monetary Policy Committee decision, raised the policy rate to 11.50% to contain inflationary pressures and manage risks linked to global uncertainty, including tensions in the Middle East. ICMA noted that despite monetary tightening, credit transmission remains uneven.
According to macroeconomic data cited in the report, Pakistan’s GDP growth stood at 3.8% in the first half of FY26, while the current account recorded a surplus during July–March FY26. Foreign exchange reserves also improved to $15.8 billion, supported by external inflows and better financial conditions.
However, ICMA cautioned that these improvements mask deeper structural weaknesses in credit allocation, which could restrict medium- to long-term growth potential if left unaddressed.
Using its Sectoral Credit Transmission Gap framework, ICMA assessed the relationship between credit growth and sectoral output. The analysis showed that agriculture credit growth has outpaced output growth, though this may partly reflect seasonal crop cycles. Services remained broadly balanced, with credit closely aligned with output performance.
The most significant concern, however, remains manufacturing, which ICMA described as persistently underfinanced despite being one of the most productive and employment-generating sectors of the economy.
ICMA stressed that effective monetary policy depends not just on controlling inflation but also on ensuring that credit flows support productive sectors. It warned that inefficient credit allocation can reduce productivity, slow economic growth, and increase financial risks, citing international frameworks from the IMF and the Bank for International Settlements.
The institute concluded that while Pakistan’s monetary system remains functional, the direction of credit remains misaligned. It called for a more targeted, productivity-focused credit policy to strengthen industrial growth and improve long-term macroeconomic stability.
