Pakistan’s broad money supply contracted by 6 percent in the opening weeks of fiscal year 2027, as both domestic and foreign assets of the banking system weakened, according to data released by the State Bank of Pakistan.

M2, the broadest measure of money circulating in the economy, 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 slipped 1 percent from Rs 43.80 trillion recorded on July 17.

Analysts attributed the contraction to a decline in net domestic assets, with net budgetary borrowing falling 1 percent during the fiscal year to date and private sector credit shrinking 4 percent amid heightened geopolitical uncertainty.

The slowdown in lending was broad-based, hitting credit to the private sector, public sector entities, and nonbank financial institutions alike. 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, weighed down by slower deposit growth. However, direct government borrowing from the central bank rose to Rs 1.7 trillion to bridge the funding gap — a move analysts expect will be largely offset by an anticipated Rs 1.4 trillion dividend payment from the SBP next month.

The currency-to-deposit ratio also weakened slightly during the period due to sluggish deposit growth, though currency in circulation has begun to recover following the Eid holidays, analysts noted.