Banking system outlook in Pakistan.

Byline: S. Kamal Hayder Kazmi

For a stable and well-organized economic structure in any country, researchers believed that a dynamic financial system is necessary. They have also revealed that a typical financial system comprises financial institutions, financial markets, clearing and settlement houses. Chiefly, banks play a crucial role in progression and development of an economy. In Pakistan banking sector constitutes the core of the financial sector.

According to the State Bank of Pakistan (SBP) as growth in the banking sector and the real economy mutually strengthen each other. Presently in the report of banking system outlook - Pakistan, Moody's revealed that high interest rates, government of Pakistan's narrow revenue base and heavy debt burden coupled with considerable structural constraints to economic and export competitiveness would weigh on economic growth. Furthermore, Moody's Investors Service revealed that the robust financing and liquidity and close links with the sovereign underpin stable viewpoint for the Pakistan banking system over the upcoming 12 to 18 months. Statistics also showed that real GDP growth rate would remain below potential at 2.9 percent in this year, with inflation and interest rates remaining high.

The Experts predict real GDP growth rate of just 2.9 percent for the fiscal year ending June 2020, down from 3.3 percent during 2019 and 5.5 percent during 2018. Interest rates have risen by 7.5 percentage points since January 2018. Furthermore, economic growth will remain subdued, nonetheless, mainly because of high policy rate which is recorded 13.25 percent. The government of Pakistan's heavy borrowing needs would also absorb bank lending at the expense of the private sector, hurting business and consumer self-assurance also private-sector debt repayment in Pakistan.

Analysis also revealed that operating situations are enhancing but will remain tough. Economic movement will be supported through present infrastructure projects, improvements in energy generation and local security and through terms of trade gains. Furthermore, rupee depreciation would probable lift private investment from low levels. Moody's predicts the tight monetary situations to keep economic activity subdued near term. It is also recorded in the report that macroeconomic policy effectiveness is growing aided through increased central bank independence that would be enshrined in a new SBP Act.

Other reforms include slowly addressing the...