Pakistan’s monetary environment remained broadly stable during FY2026, supported by improving macroeconomic indicators, stronger private sector borrowing, and sustained momentum in the capital market. The latest Monthly Economic Update and Outlook noted that the State Bank of Pakistan’s Monetary Policy Committee decided to keep the policy rate unchanged at 11.5 percent during its meeting held on July 27, 2026. The central bank assessed that inflationary pressures had eased following the earlier decline in international oil prices and improvements in global supply chains. These developments, together with encouraging high frequency economic indicators, contributed to a more stable economic outlook. However, policymakers also acknowledged that regional developments, particularly renewed conflict in the Middle East, continue to pose external risks that could affect inflation, trade, and overall economic stability in the months ahead.
The report also highlighted notable expansion in monetary aggregates during FY2026. Broad Money (M2) increased by Rs5.957 trillion, reflecting annual growth of 14.7 percent compared with growth of 12.9 percent recorded during FY2025. The increase was driven by improvements in both Net Foreign Assets and Net Domestic Assets of the banking system. Net Foreign Assets expanded by Rs1.673 trillion during FY2026, slightly exceeding the increase recorded a year earlier. At the same time, Net Domestic Assets grew by Rs4.284 trillion, reflecting stronger domestic financial activity compared with the previous fiscal year. These developments indicate that liquidity conditions remained supportive while financial institutions continued to meet the economy’s financing requirements.
Government borrowing from the banking system for budgetary support moderated during FY2026, falling to Rs2.251 trillion from Rs4.354 trillion recorded in the previous fiscal year. The reduction reflects relatively improved fiscal management compared with earlier years, although government financing requirements continued to remain significant. Alongside this moderation, lending to the private sector accelerated considerably. Private sector credit increased by Rs1.463 trillion during FY2026, compared with Rs1.082 trillion in FY2025, indicating improving business confidence and stronger financing demand from productive sectors of the economy.
Business financing continued to account for the largest share of private sector borrowing. Loans extended to private businesses reached Rs1.176 trillion during FY2026, exceeding the previous year’s borrowing level of Rs1.007 trillion. Working capital financing remained a key contributor, with businesses obtaining net borrowing of Rs632 billion compared with Rs617 billion during FY2025. Industries including sugar, rice and wheat processing, pharmaceuticals, electrical equipment manufacturing, wholesale and retail trade, construction, and cement were among the largest users of working capital facilities as businesses expanded operations to meet increasing domestic demand.
Demand for long term financing also strengthened during the fiscal year. Fixed investment loans increased to Rs625 billion compared with Rs414 billion recorded a year earlier, highlighting renewed investment activity across several industries. Textile manufacturers, chemical producers, cement companies, construction businesses, transport operators, and storage service providers accounted for a significant portion of these investment loans. The higher level of fixed investment borrowing suggests that businesses are gradually increasing capital expenditure to improve production capacity and modernize operations, supported by a relatively stable interest rate environment.
Pakistan’s equity market also delivered a strong performance during FY2026 despite intermittent geopolitical uncertainty. The Pakistan Stock Exchange maintained positive momentum throughout June, with the benchmark KSE-100 Index gaining 6,339 points to close the fiscal year at 180,302 points. Market participants continued to respond positively to improving macroeconomic conditions, attractive company valuations, and ample liquidity available within the financial system. Investor confidence remained resilient despite external challenges, reflecting expectations of continued economic stability and stronger corporate earnings.
The positive performance of the stock market was also reflected in overall market capitalization, which increased by Rs1.031 trillion to reach Rs20.198 trillion by the end of June FY2026. The improvement illustrates growing investor participation across multiple sectors of the economy and signals increasing confidence in Pakistan’s financial markets. Market analysts believe that continued policy consistency, controlled inflation, and stronger corporate profitability could help sustain investor interest, although global economic developments and regional geopolitical tensions remain important factors that could influence future market direction.
Overall, the latest economic assessment indicates that Pakistan’s monetary conditions remained balanced throughout FY2026, with steady policy measures supporting inflation management while encouraging economic activity. Growth in private sector financing, expansion in money supply, lower government borrowing, and continued strength in the stock market collectively point toward improving financial conditions. Even as policymakers remain alert to external risks, the latest indicators suggest that the country’s financial system continues to provide a stable foundation for economic growth and investment.
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