December 8, 2021 (MLN): The total money supply circulating within the economy during the fourth month of FY22 has been recorded at around Rs27.59trillion, according to provisional accounts on Monetary Aggregates for the month, maintained by the State Bank of Pakistan.
The money circulating within the economy until Sep’21 was Rs27.84tr whereas, until the corresponding month of last year, the figure was Rs25.16tr. This means that the money supply has increased by Rs2.42tr or 10% over the year while declining by 1% over the month.
The growth of the money supply continues to accelerate mainly on the back of a rapid increase in economic activity and a credit demand from the private sector. Credit offtake by the private sector from the banking channel increased by 16% YoY in Oct’21 to Rs7.17tr. Moreover, higher government borrowing from banks also led to an increase in broad money growth. The increased government borrowing from banks since last year was owing to the huge spending to fight the Covid-19 pandemic. To note, the overall credit to the government sector during the month stood at Rs16.5tr which was 10% higher compared to the same month last year.
Having broken down the overall money supply into broad categories, the SBP data shows that a total of Rs7tr were circulated as notes while Rs12.8tr accounted for transferable deposits which comprise all deposits that are exchangeable on demand at par without penalty/restriction.
The currency circulated as notes which has been high in Pakistan relative to other developed and emerging economies because of the high informal economy rose by over Rs0.93tr or 15% over the year. Meanwhile, it is worth mentioning that in 2018 when the PTI government came into power, the total currency in circulation in the country was approximately Rs4.7tr. From then until the beginning of the Covid period in March 2020, this figure has surged to Rs5.6tr. In May 2020, notes in circulation crossed the Rs6tr mark, and since then it has consistently stayed above that mark. It surpassed the Rs7tr mark in July 2021. This reflects higher cash withdrawals by depositors to meet needs amid pandemics. Moreover, Cash distributing schemes amid Covid-19 as a relief measure can also be considered as a significant contributor to the surging circulation of currency.
Apart from this, other deposits constituted Rs3.7tr in Oct 2021, up by 7%YoY while decreasing by 2% MoM. Other deposits represent all claims other than transferable deposits in national or foreign currency that are represented by evidence of deposits.
On the other hand, coins in circulation remained flat at Rs9billion in Oct 2021. While, on monthly basis, it declined by 1%.
Furthermore, Rs206.54bn worth of deposits were held with post offices, down by 25%YoY and 3% MoM, while National Saving Schemes held Rs3.72tn, marking a decline of 9% YoY whereas on a monthly basis, it remained stable.
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