Financing consumption through SMEs
The article argues that Pakistan's SME financing policies are inadvertently fueling consumption rather than productive manufacturing growth. It suggests that credit is disproportionately flowing to trade and services instead of export-oriented manufacturing.
Why it matters
The analysis highlights a structural economic issue in Pakistan that may hinder the country's transition to a higher-income economy.
Trade and consumption-facing services recycle domestic demand; they do not build export earnings, productivity growth, or foreign exchange. An SME policy that channels financing toward that segment by default, because it is sector-blind, not because it is deliberate, is financing consumption growth and calling it SME development.
This is in a scenario where consumption as a percentage of GDP has consistently exceeded 97 per cent, while investment as a percentage of GDP has lagged at an average of 12pc over the last five decades. There does not exist a single example of a middle-income economy that graduated to middle-income status solely on the basis of consumption, without producing or exporting much.
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