Abdul Ghani

Pakistan’s monetary indicators reflected tighter conditions during July–August FY2026 as the government drastically reduced its budgetary borrowing and overall money supply contracted, the Finance Division reported in its Monthly Economic Update & Outlook – September 2025.

According to the report, the government retired Rs.2,328.2 billion in budgetary borrowing during July–August FY2026. This is a stark contrast to the net borrowing of Rs.733.3 billion recorded in the same period of the previous fiscal year. The sharp cutback reflects fiscal restraint, higher revenue mobilization and improved expenditure management.

The money supply (M2) also contracted by 2.3 percent in the first two months of FY2026, compared to a 2.5 percent contraction in the same period last year. Within M2, net foreign assets of the banking system increased by Rs.34.6 billion, while net domestic assets declined sharply by Rs.990 billion, mainly due to government debt retirement.

The private sector also recorded net retirements of Rs.214.8 billion during this period, underscoring limited fresh borrowing in the early months of the fiscal year.

Meanwhile, the Monetary Policy Committee (MPC) kept the policy rate unchanged at 11 percent in its meeting held on September 15, 2025. The decision reflected a cautious stance, balancing the benefits of moderating inflation and stable financial conditions against risks posed by ongoing flood disruptions and uncertainty over global economic trends.

The Finance Division emphasized that the combination of reduced government borrowing, controlled money supply, and steady policy rates highlights an environment of cautious monetary stability. However, it also warned that temporary flood-related supply shocks may put pressure on food prices in the short term, necessitating continued vigilance.

Credit: INP-WealthPk