Qudsia Bano

Experts note a positive trend in Pakistan's financial landscape, as broad money (M2) growth has reached 7% during the July-March period of FY2024, amounting to Rs2,216.1 billion. This marks a significant increase compared to the 4.4% growth (Rs1,211.5 billion) observed during the same period last year. The expansion in broad money is seen as a reflection of improved economic activity and effective monetary policies. Talking to WealthPK, Dr. Ahmad Mateen, a World Bank financial analyst, said a 7% growth in broad money was a promising indicator of economic stability and increased financial activity. It suggests that the businesses and consumers both are engaging more actively in the economy, which is essential for sustained growth. This growth is particularly noteworthy given the global economic uncertainties and domestic challenges.

The increase in broad money supply is primarily driven by the banking system's expansion in Net Foreign Assets (NFA) and Net Domestic Assets (NDA). During the July-March period of FY2024, NFA witnessed an expansion of Rs529.7 billion compared to a decline of Rs2,073 billion in the same period last year. Meanwhile, NDA increased by Rs1,686.5 billion, which was lower than Rs3,284.5 billion increase recorded last year. Relationship Manager at Faysal Bank Muhammad Khattak said, "The expansion in NFA indicates an improvement in the external sector, which is crucial for the country's overall economic health. Additionally, the growth in NDA reflects ongoing domestic economic activities and credit extension to the private sector." He noted that these trends indicated a more balanced and resilient financial system. Experts also point out that the growth in broad money supply can have positive implications for various sectors of the economy.

Increased money supply can support higher levels of investment and consumption, driving economic growth. "With more money circulating in the economy, businesses have better access to credit, which can spur investment in new projects and expansion plans. This, in turn, can lead to job creation and increased economic output," said Khattak. However, he cautioned that managing the money supply was crucial to avoid potential inflation. While the growth in broad money is a positive sign, it is essential to ensure that this does not translate into excessive inflation. The central bank must continue to monitor the money supply and implement appropriate measures to maintain price stability.

Credit: INP-WealthPk