The monetary landscape of Pakistan has experienced a significant expansion, with the broad money supply, commonly known as M2, reaching a total of Rs43.46 trillion as of May 1, 2026. Data recently unveiled by the State Bank of Pakistan indicates a substantial week-on-week increase of Rs820.67 billion. This surge highlights a broader trend of liquidity growth within the national economy, as the current figure represents a massive Rs2.95 trillion increase since the close of the previous fiscal year in June 2025, when M2 was recorded at Rs40.51 trillion. As the primary metric for measuring the total volume of money available in the economy, this growth in M2 serves as a critical indicator for inflationary trends and overall economic activity.
A deeper look into the components of this money supply reveals a shifting dynamic between physical cash and digital holdings. Interestingly, the currency in circulation within the economy witnessed a decline of Rs101.84 billion on a week-on-week basis, settling at Rs11.65 trillion. However, despite this short-term dip, the long-term trend remains upward; the currency in circulation has expanded by over Rs1 trillion since June 2025. When measured as a percentage of the total M2, physical cash now accounts for 26.8 percent of the money supply, a slight contraction from the 27.56 percent observed just a week prior, suggesting a temporary movement of funds back into the formal banking system.
The primary driver behind the recent spike in M2 appears to be a massive influx of bank deposits. Total deposits held within the banking sector reached Rs31.76 trillion by the start of May, marking an impressive weekly rise of Rs910.45 billion. Looking at the fiscal year to date, these deposits have grown by Rs1.94 trillion. It is important to note that these figures specifically represent the holdings of the non-government sector and residents’ foreign currency accounts, while excluding inter-bank deposits and government-owned funds. This significant accumulation of capital in bank accounts reflects a strengthening of the formal financial sector’s liquidity position.
In the technical framework of Pakistan’s financial system, M2 is defined through two lenses. From the liability perspective, it encompasses the total currency in circulation, all non-government deposits, and specialized deposits held with the State Bank of Pakistan. Conversely, from the asset side, it is calculated as the sum of net domestic assets and net foreign assets held by the entire banking system, including both the central bank and scheduled commercial banks. This dual-sided approach allows regulators to monitor how wealth is being generated and stored across the country’s diverse financial channels.
The current trajectory of broad money growth suggests that while the general public and financial institutions continue to hold a significant amount of banknotes and coins, the role of bank-held deposits is becoming increasingly dominant in driving the total money supply. As the 2026 fiscal year progresses, the State Bank of Pakistan will likely continue to monitor these M2 levels closely to balance the need for economic liquidity with the necessity of maintaining price stability. The recent shift in the ratio of cash-to-deposits will be a key area of focus for analysts attempting to gauge the success of recent efforts to document the economy and encourage formal financial participation.
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