Pakistan’s monetary and capital market indicators during the first half of FY2026 point toward an improving business environment, supported by expanding money supply, a shift in private sector borrowing toward fixed investment, and a strong recovery in equity markets. These developments reflect growing confidence among businesses and investors amid improving macroeconomic conditions.
During Jul–Dec FY2026, broad money supply (M2) recorded a growth of 3.7%, a notable turnaround compared to a contraction of 0.7% observed during the same period last year. The expansion in money supply indicates easing financial conditions and improved liquidity in the economy, which are essential for sustaining economic activity and supporting growth across key sectors.
Within M2, the Net Foreign Assets of the banking system increased by Rs107.9 billion during the period, compared to a much larger increase of Rs667.3bn recorded last year. While the pace of NFA accumulation slowed, the positive growth still reflects relative stability in the external position of the banking system. At the same time, Net Domestic Assets of the banking sector expanded sharply by Rs1,406.5bn, in contrast to a contraction of Rs934.7bn during the corresponding period last year. The rise in NDA underscores stronger domestic credit activity and increased financial intermediation within the economy.
On the fiscal side, borrowing patterns also showed improvement. Under borrowing for budgetary support, the government retired Rs347.0bn during Jul–Dec FY2026, compared to a significantly higher retirement of Rs2,215.4bn in the same period last year. This moderation reflects changes in fiscal financing needs and improved revenue and expenditure management.
Private sector credit expansion remained positive, although lower than last year. During the first half of FY2026, the private sector borrowed Rs992.3bn, compared to Rs1,978.9bn in the same period last year. The higher borrowing in H1-FY2025 was largely driven by advances-to-deposit ratio requirements. In the current fiscal year, however, the composition of credit shifted in a more growth-supportive direction.
Notably, demand for fixed investment loans by businesses increased to Rs257bn during the period. This rise in long-term and investment-oriented borrowing is viewed as a positive signal for sustaining large-scale manufacturing growth in the coming months, as it reflects business confidence in capacity expansion and longer-term planning rather than short-term working capital needs.
Capital market performance further reinforced signs of improving sentiment. December 2025 witnessed a strong recovery at the Pakistan Stock Exchange, with the KSE-100 Index gaining 7,376 points during the month to close at 174,054. The rally reflected renewed buying interest and improved investor confidence amid better macroeconomic indicators and expectations of continued stability.
Market capitalization also recorded a substantial increase, rising by Rs823bn to reach Rs19,690bn by the end of December 2025. The positive momentum continued into January 2026, with the KSE-100 Index reaching 188,587 points as of January 26, 2026. Total market capitalization stood at Rs21,161.7bn, highlighting sustained investor participation and valuation gains.
Overall, the improvement in monetary aggregates, the healthier composition of private sector credit, and the strong performance of the equity market collectively indicate a more supportive business environment. These trends, if maintained, are expected to reinforce investment activity, strengthen industrial growth, and contribute to broader economic stability in the remaining months of FY2026.
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