Pakistan’s cash holdings have dipped by a significant Rs. 212 billion during the current fiscal year (FY24) according to the latest data from the State Bank of Pakistan (SBP).
Despite this decrease, broad money supply (M2) has grown by Rs. 25.3 billion, reaching Rs. 33.9 trillion as of May 17th, 2024. This translates to a 7.7% increase from Rs. 31.5 trillion at the close of the previous fiscal year (June 2023).
The data reveals a key trend: currency in circulation (CiC) has fallen by nearly Rs. 212 billion, reaching Rs. 8.9 trillion in FY24 so far. This represents a 2% decline compared to the total CiC of Rs. 9.148 trillion at the end of June FY23.
Meanwhile, total deposits held by local banks have reached Rs. 24.88 trillion, resulting in a CiC-to-bank deposit ratio of 35.8%. As a percentage of M2, CiC stands at 26.3%.
This decline in CiC is likely linked to the FY24 budget provisions that introduced a standard fee on cash withdrawals for non-filers. This may have incentivized individuals to keep more money in banks.
In contrast, net domestic assets within the banking system have shown an increase of Rs. 2.1 trillion year-to-date (FYTD), compared to Rs. 3.9 trillion in the previous year. Additionally, net foreign assets of the banking system have grown by Rs. 319 billion during FY24.
Looking ahead, the federal government is expected to propose an increase in the advance tax on cash withdrawals by non-filers in the next fiscal year’s budget, aligning with demands from the IMF. Sources estimate this proposal, if approved, could generate over Rs. 15 billion annually in revenue from non-filers.
However, there are concerns among the public that a higher tax on cash withdrawals could lead many individuals to withdraw significant sums from their bank accounts. This potential rise in CiC could negatively impact deposits in local banks.