Pakistan’s monetary indicators reflected seasonal trends during the opening weeks of fiscal year 2027, with broad money supply recording a substantial contraction between July 1 and August 14. Broad money, measured through M2, declined by Rs2,629.5 billion during the period, compared with a contraction of Rs1,362.0 billion recorded over the corresponding period of the previous fiscal year. The larger decline indicates a stronger contraction in monetary aggregates at the beginning of FY2027.
The reduction in broad money was driven by declines in both the Net Foreign Assets (NFA) and Net Domestic Assets (NDA) of the banking system. Net Foreign Assets decreased by Rs260.1 billion during the period, while Net Domestic Assets recorded a substantially larger decline of Rs2,369.4 billion. The movement in these two components accounted for the overall contraction in broad money during the opening weeks of the new fiscal year.
Government borrowing for budgetary support also showed a different pattern compared with the previous year. During the period, the government recorded a net retirement of Rs413.7 billion, compared with a retirement of Rs76.3 billion during the same period a year earlier. The larger retirement indicates that the government reduced its outstanding borrowing for budgetary support during the period, contributing to the movement in the banking system’s domestic assets.
Private sector credit also recorded a seasonal retirement during the opening weeks of FY2027. Private sector credit declined by Rs393.4 billion, compared with a retirement of Rs232.1 billion during the corresponding period of the previous year. The movement reflects the seasonal pattern in credit demand and repayment activity as businesses and financial institutions move into a new fiscal year.
The larger retirement in private sector credit compared with the previous year contributed to the contraction in domestic monetary aggregates. While credit conditions can vary throughout the fiscal year, the early FY2027 figures show that private sector borrowing moved lower during the period under review. The decline occurred alongside the reduction in government borrowing for budgetary support.
The contraction in M2 was therefore influenced primarily by the decline in Net Domestic Assets, which fell by Rs2,369.4 billion, while Net Foreign Assets decreased by Rs260.1 billion. Together, the movements in these components resulted in a Rs2,629.5 billion reduction in broad money between July 1 and August 14. The scale of the contraction was notably larger than the Rs1,362.0 billion decline recorded during the same period last year.
The monetary developments came as Pakistan’s financial markets also faced pressure during July 2026. The Pakistan Stock Exchange remained under pressure amid renewed geopolitical tensions, with the benchmark KSE 100 Index declining by 4,208 points during the month. The index closed July at 176,094, reflecting a significant decline from its level at the beginning of the month.
Market capitalisation also decreased during July. The total market capitalisation of the Pakistan Stock Exchange fell by Rs442 billion, reaching Rs19,755.7 billion by the end of the month. The decline in market value accompanied the fall in the KSE 100 Index as renewed geopolitical concerns affected investor sentiment during the month.
The stock market performance occurred alongside broader monetary movements in the banking system. While M2 contracted substantially during the early weeks of FY2027, the equity market experienced a decline in both its benchmark index and total market capitalisation during July. The two developments reflect financial market conditions during the opening period of the new fiscal year, although the monetary data covers the period through August 14 while the stock market figures relate to July.
The government’s net retirement of Rs413.7 billion in budgetary borrowing also represents a notable shift from the previous year’s position. During the corresponding period last year, the government retired Rs76.3 billion. Similarly, the private sector recorded a retirement of Rs393.4 billion compared with Rs232.1 billion a year earlier. Both movements contributed to the seasonal contraction in credit during the period.
The monetary indicators provide an early view of financial conditions as Pakistan entered FY2027. Broad money declined more sharply than during the corresponding period of FY2026, with the contraction concentrated in Net Domestic Assets. At the same time, both government and private sector credit recorded higher retirements than a year earlier.
The Pakistan Stock Exchange’s July performance added another dimension to the financial environment, as the KSE 100 Index declined by 4,208 points and market capitalisation fell by Rs442 billion. Renewed geopolitical tensions were cited as a factor behind the pressure on the market.
Overall, the opening weeks of FY2027 were marked by a contraction in broad money, seasonal credit retirements and weakness in the equity market. M2 declined by Rs2,629.5 billion between July 1 and August 14, with Net Domestic Assets accounting for the largest portion of the reduction. Government and private sector credit both recorded larger retirements than a year earlier, while the KSE 100 Index and market capitalisation declined during July amid renewed geopolitical tensions.
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