The Analysis of Economic survey of Pakistan FY2020 showed that broad money enlarged by Rs 1,481.3 billion during 01 Jul-24 Apr, FY2020 against with Rs 540.6 billion previous year. This higher money growth was because of to a sharp expansion in the NFA of the banking system, mainly of the State Bank of Pakistan (SBP). Net Foreign Assets (NFA) point contribution has grown to 5 percent during the period under review against with the negative growth of 5.6 percent in the corresponding period last year. NDA point contribution reached at 3.3 percent reflecting government spending to fight against the Covid-19 spread and provide relief to the population. Thus, overall money supply increased by 8.3 percent during the period under review. The Analysis also showed that reserve money grew by 8.4 percent (Rs 549.1 billion) during 01 Jul-24 Apr, FY2020 as against to 8.9 percent (Rs 488 billion) during the comparable period previous year. The rise in reserve money has been observed on account of a substantial rise in SBP’s NFA. The NFA of SBP rose by Rs 902.7 billion during 01 Jul- 24 Apr, FY2020 against a sharp contraction of Rs 743.8 billion in the corresponding period last year.
|Monetary Indicators (Rs Billion)|
|Details||FY2019 (Stocks) (R)||24-Apr-20||26-Apr-19|
|Net Foreign Assets(NFA)||-1,507.1||893.7||-890.4|
|Net Domestic Assets(NDA)||19,305.6||587.6||1,431.0|
|Net Government Borrowing||12,336.7||911.7||825.9|
|Borrowing for budgetary support||11,596.5||1,023.9||990.9|
|From Scheduled banks||4,904.6||1,760.4||-2,213.9|
|Credit to Private Sector (R)||6,666.5||304.7||581.0|
|Credit to PSEs||1,394.2||-10.6||312.1|
|Growth in M2 (%)||11.3||8.3||3.4|
|Reserve Money Growth (%)||19.9||8.4||8.9|
On the other hand, NDA of SBP fell by Rs 353.7 billion as against the rise of Rs 1,231.8 billion during the same period last year as the government of Pakistan has discontinued its borrowing from SBP. Within broad money, the NFA of the banking sector enlarged through Rs 893.7 billion during 01 July-24 Apr, FY2020 against the contraction of Rs 890.4 billion in the corresponding period previous year. The rise in NFA reflects the improvement in Pakistan’s external account. While the expansion in net domestic assets remained moderate and reached at Rs 587. 6 billion as against the expansion of Rs 1,431 billion in the same period previous year. The growth in NDA decelerated because of low growth in credit to private sector (PSC) and net retirement of credit to public sector enterprises (PSEs), reflecting the economic slowdown. During FY2020 analysis also showed that broad money (M2) witnessed an expansion of Rs 1,481.3 billion (8.3 percent) during 01 July-24 Apr, FY2020 against the rise of Rs 540.6 billion (3.4 percent) in the comparable period last year.
The expansion during FY2020 so far has been driven by a substantial rise in NFA, whereas NDA of the banking system showed deceleration. Credit to private sector (CPS) flows reached at Rs 693.5 billion during FY2019 against Rs 775.5 billion previous year. CPS reached at Rs 304.7 billion during 01 Jul-24 Apr, FY2020 as against to the expansion of Rs 581 billion in the same period. As part of stabilization measures, SBP initially raise the policy rate to contain the demand pressure and to enhance inflation outlook. Consequently, slowdown in economic activities and high cost of borrowing triggered a decline in credit demand. During 01 Jul-24 Apr FY2020, credit to public sector enterprises (PSEs) witnessed a retirement of Rs 10.6 billion as against the borrowing of Rs 312.1 billion during the same period of last year.
As economies reopen with expectations that the adverse impact of Covid-19 is bottoming out, there is an on-going debate over the shape of the Recovery. Investors have fears about decline in economic growth and business profits due to a decrease in demand. Capital flight is also expected with prevailing uncertainty and vulnerabilities, thus putting pressure on the exchange rate. The economic outlook is not very clear as well as doesn’t seem promising, however, the fiscal stimulus package of Rs 1.24 trillion along with measures taken through SBP for providing liquidity support to households and businesses will counteract the current economic downturn.