By Abdul Ghani

Pakistan's stable monetary policy stance, improving liquidity conditions and rising private sector credit are expected to encourage business investment and support economic growth during FY2026-27, according to the Finance Division.

The Monthly Economic Update & Outlook (June 2026) states that the State Bank of Pakistan's decision to maintain the policy rate at 11.5% reflects growing confidence in the country's macroeconomic stability despite temporary inflationary pressures arising from recent geopolitical developments.

According to the report, the Monetary Policy Committee assessed that although headline inflation moved into double digits during April and May, the external sector remained manageable after Pakistan posted a current account surplus in May, while overall economic conditions remained broadly consistent with the central bank's earlier assessment.

The report notes that one of the clearest signs of improving business confidence is the increase in private sector borrowing. During July 1, 2025, to June 12, 2026, private sector credit rose to Rs873.3 billion, compared with Rs676.6 billion during the corresponding period of the previous fiscal year. The higher demand for bank financing suggests that businesses are gradually expanding investment and production activities as macroeconomic conditions improve.

At the same time, government reliance on bank borrowing eased considerably. Borrowing for budgetary support declined to Rs1.80 trillion, down from Rs3.21 trillion during the same period last year. According to the report, lower government borrowing is expected to create greater room for private sector access to bank credit, supporting investment-led economic growth.

Liquidity conditions also improved during the fiscal year. Broad money (M2) expanded by 9.2%, or Rs3.73 trillion, while the banking system's Net Foreign Assets increased by Rs1.67 trillion and Net Domestic Assets by Rs2.06 trillion. The report indicates that stronger liquidity, together with an improving external position, has enhanced the banking sector's capacity to support economic activity.

According to the Finance Division, easing geopolitical tensions and moderating international oil prices are expected to reduce inflationary pressures in the coming months, creating a more favourable environment for investment and business expansion. Continued fiscal consolidation and improved external sector indicators are also expected to reinforce macroeconomic stability.

The report notes that maintaining monetary stability while improving access to credit will remain important for sustaining the recovery in manufacturing, agriculture and services. As business confidence strengthens and financing conditions improve, private investment is expected to play a larger role in supporting economic growth during FY2026-27.

According to the Finance Division, the combination of prudent monetary management, stronger banking sector liquidity and rising private sector credit provides a supportive foundation for higher investment and economic expansion. The report concludes that these trends are expected to reinforce Pakistan's growth momentum while preserving macroeconomic stability during the new fiscal year.

Credit: INP-WealthPk