By Abdul Ghani
ISLAMABAD— Pakistan’s money supply showed signs of tightening during July–August FY2026 as the government sharply reduced its borrowing, according to the Finance Division’s Monthly Economic Update & Outlook – September 2025.
The report shows that the government retired Rs.2,328.2 billion in budgetary borrowing during the first two months of FY2026.
This is a big change from the Rs.733.3 billion borrowed during the same period last year. The cutback reflects stronger revenue collection, better spending management, and an effort to control fiscal pressure.
The country’s money supply (M2) also shrank by 2.3 percent during this period, compared to a 2.5 percent drop last year.
Within M2, banks’ net foreign assets rose by Rs.34.6 billion, while domestic assets fell sharply by Rs.990 billion, mainly because the government paid down debt.
Private businesses also reduced borrowing, retiring Rs.214.8 billion during the same period, showing that fresh borrowing was limited in the early months of the fiscal year.
Meanwhile, the Monetary Policy Committee (MPC) decided to keep the policy rate steady at 11 percent in its September 15, 2025 meeting.
The committee cited a cautious approach, balancing the benefits of easing inflation and stable financial conditions with risks from floods and global economic uncertainty.
The Finance Division highlighted that lower government borrowing, controlled money supply, and steady interest rates signal cautious monetary stability.
However, it also warned that flood-related supply problems could temporarily push up food prices, requiring ongoing attention.
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