Pakistan’s broad money supply (M2) declined by 6 percent during the opening weeks of FY2027, reflecting slower credit growth, reduced government borrowing from commercial banks, and weaker banking sector assets, according to the latest State Bank of Pakistan (SBP) data.
The decline is significant because M2 is a key indicator of liquidity in the economy. A slowdown in money supply growth can affect lending, business investment, consumer spending, and overall economic activity, making it an important measure for investors and policymakers.
Key Details
According to SBP data, Pakistan’s M2 money supply fell to Rs. 43.57 trillion as of July 24, 2026, compared with Rs. 46.46 trillion at the end of June.
On a weekly basis, M2 also declined by 1 percent, down from Rs. 43.80 trillion recorded on July 17.
Analysts attributed the decline mainly to weaker growth in both domestic and foreign assets of the banking system.
Major factors behind the decline
Several factors contributed to the contraction in money supply:
- M2 money supply declined 6% to Rs. 43.57 trillion.
- Weekly decline: 1% from Rs. 43.80 trillion.
- Private sector credit contracted 4%.
- Net budgetary borrowing fell 1% during the fiscal year to date.
- Government borrowing from commercial banks declined 5.3%.
- Direct government borrowing from SBP increased to Rs. 1.7 trillion.
Analysts said lending slowed across multiple sectors, including the private sector, public sector enterprises, and non-bank financial institutions.
Private sector borrowing remained subdued amid heightened geopolitical uncertainty and cautious business sentiment.
Government Borrowing Trends
The report shows that the federal government reduced its reliance on commercial banks, with borrowing from banks falling by 5.3 percent, partly due to slower deposit growth.
However, direct borrowing from the State Bank of Pakistan increased to Rs. 1.7 trillion to help meet financing requirements.
Economists expect much of this increase to be offset by an anticipated Rs. 1.4 trillion SBP dividend that the federal government is likely to receive next month.
Background
Broad money (M2) includes currency in circulation, demand deposits, savings deposits, and other near-money instruments. It is widely monitored as an indicator of liquidity and economic activity.
Seasonal declines in money supply are common at the beginning of a fiscal year following year-end government spending and banking adjustments. However, analysts closely watch the pace of contraction because prolonged weakness may signal slowing economic momentum.
Pakistan has been pursuing tighter fiscal and monetary policies over the past year to stabilize inflation, improve external accounts, and strengthen macroeconomic stability.
What This Means
The latest figures suggest that credit demand remains soft despite improving macroeconomic indicators.
Lower government borrowing from commercial banks could create additional room for private-sector lending over time. However, businesses may remain cautious until economic uncertainty eases and investment confidence improves.
Analysts believe future trends in money supply will largely depend on government borrowing needs, tax collection, deposit growth, and the State Bank’s monetary policy decisions.
What’s Next?
Financial markets will closely monitor upcoming SBP monetary data and the central bank’s next policy announcements to assess whether liquidity conditions begin improving.
The expected Rs. 1.4 trillion SBP dividend to the federal government could also influence government financing needs and banking sector liquidity in the coming weeks.
Analysts said the slowdown in money supply reflects weaker lending activity alongside reduced government borrowing from commercial banks during the opening weeks of FY2027.
FAQ
What is M2 money supply?
M2 is a broad measure of money in the economy, including cash in circulation, bank deposits, and other liquid financial assets.
Why did Pakistan’s M2 decline?
The decline was mainly driven by lower private-sector credit, reduced government borrowing from commercial banks, and weaker growth in banking system assets.
Why does M2 matter?
Money supply influences economic activity, lending, inflation, and investment. Changes in M2 help economists assess liquidity conditions and the overall health of the economy.
