Pakistan’s broad money supply (M2) contracted by 6 percent during the early weeks of fiscal year 2027, reflecting weaker growth in both domestic and foreign assets of the banking system, according to State Bank of Pakistan (SBP) data.
M2 stood at Rs. 43.57 trillion as of July 24, down from Rs. 46.46 trillion at the end of June. On a weekly basis, the money supply declined 1 percent from Rs. 43.80 trillion recorded on July 17.
According to analysts, the decline was driven by lower net domestic assets, with net budgetary borrowing falling 1 percent during the fiscal year to date and private sector credit contracting 4 percent amid heightened geopolitical uncertainty.
The slowdown in lending was broad-based, with credit to the private sector, public sector entities, and nonbank financial institutions all declining. He added that net government borrowing fell 1.5 percent, supported by stronger-than-expected tax collection and prudent federal spending.
Government borrowing from commercial banks declined 5.3 percent because of slower deposit growth. However, direct government borrowing from the SBP rose to Rs. 1.7 trillion to bridge the funding gap, a move that is likely to be largely offset by an expected Rs. 1.4 trillion dividend from the central bank next month.
The analyst also noted that the currency to deposit ratio weakened slightly during the period because of slower deposit growth, although currency in circulation has started improving following the Eid holidays.
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