Monetary development taking shape in Pakistan.

Byline: S. KAMAL HAYDER KAZMI

According to the Economic Survey of Pakistan FY2022, the Broad Money (M2) witnessed a rise of Rs 1,193.7 billion during March FY2023 as against Rs 698.4 billion during the corresponding period of the previous year. The Net Foreign Assets (NFA) within M2, of the banking system fell by Rs 2060.6 billion as against a decline of Rs 1197.7 billion last year. NFA's point contribution declined to 7.4 percent as against to pessimistic contribution of 4.9 percent during the corresponding period of the previous year. This shows deteriorated external sector position and depleting FX reserves.

The Net Domestic Assets (NDA) on the other hand, of the banking sector grew by Rs 3254.2 billion as against Rs 1896.2 billion during the corresponding period previous year. Significant growth in NDA is offset by the pessimistic growth of NFA, which contained the growth of M2 during the period under review. The NFA of the State Bank of Pakistan (SBP) observed a contraction of Rs 1,665.8 billion during the period under review as against a decline of Rs 1197.7 billion in last year. This fall was observed on account of payment pressures because of exchange rate depreciation and high international commodity prices.

In addition, the scheduled repayments of external debt grew the gross financing requirements of Pakistan. However, in the absence of adequate external inflows, these payments were partially funded through a drawdown in SBP reserves during the period under review. Whereas, NFA of the scheduled bank declined by Rs 394.8 billion as against an increase of Rs 62.9 billion last year, explained an increase in foreign liabilities of commercial banks. On the contrary, NDA of SBP observed an expansion of Rs 2,617.5 billion against Rs 1,420.3 billion last year. On the other hand, NDA of scheduled banks witnessed an expansion of Rs 636.7 billion against an expansion of Rs 475.9 billion in last year. The significant expansion in NDA was observed mainly because of higher budgetary borrowing. Therefore, M2 growth totally stemmed from growth in NDA which partially offset through a contraction in NFA growth.

Reserve Money grew by 8.8 percent during March, FY2023 as against to growth of 4.5 percent during the corresponding period last year. Reserve Money increased greater than double compared to last year, totally came from growth in NDA of SBP, which was partially offset by negative NFA of SBP. Credit to PSEs observed a rise of Rs 197.1 billion...