HomeBusinessEconomyIMF wants Pakistan to increase interest rate

IMF wants Pakistan to increase interest rate

Recent conversations between the State Bank of Pakistan (SBP) and the IMF focused on the potential for tightening monetary policy and raising foreign exchange reserves by the end of June 2023.

Pakistan’s SBP-held foreign exchange reserves were $3.1 billion as of February 10, 2023, a rise of $276 million. This was largely attributable to increased liquidity brought on by decreased disparities between interbank and open markets following exchange rate modifications.

Pakistan will need to obtain at least $17-18 billion over the next four and a half months in order to meet the IMF’s recommendation that it enhance foreign exchange reserves to $12 billion by the end of June 2023. This sum includes $5 billion in commitments for repayment of external debt, $3–4 billion in financing for the current account deficit (CAD), and $8–9 billion in reserve building for foreign exchange.

If the IMF accepts Pakistan’s plan, it will need inflows of $11–12 billion to cover foreign debt servicing, CAD financing, and the growth of foreign exchange reserves to $6–7 billion by the end of June 2023. The IMF has also recommended increasing the policy rate by 300 to 400 basis points in order to change the trend of interest rates in the right direction. The Monetary Policy Committee (MPC), which was constituted by the SBP Amendment Act, is, according to SBP officials, entitled to make judgements based on macroeconomic factors.

You may also be interested in

Prior to the IMF executive board meeting in four to six weeks, Pakistani authorities hope to secure a staff-level agreement with the review mission next week, according to a senior official in the finance ministry. Nonetheless, there is still a difference in the forecasts for foreign financing.

Pakistan has taken difficult steps, such as boosting the costs of POL and electricity and gas, enacting levies totaling Rs170 billion through a mini-budget, and adopting a market-based currency rate. Although these actions were in the hands of Pakistani authorities, obtaining approval from multilateral and bilateral creditors to cover the programme period’s significant external finance requirements is currently the most important phase. On June 30, 2023, the EFF programme is scheduled to conclude with no chance of extension.



- Advertisment -

Most Popular

Recent Comments