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State Bank Of Pakistan Likely To Raise Interest Rate To Unlock IMF Loan Programme
The Shehbaz Sharif-led government is adopting desperate measures to obtain much-needed funds, but the IMF is not pleased with the incumbent government's previous actions
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The State Bank of Pakistan (SBP) is likely to raise the interest rate by 2 per cent at the ensuing meeting of the Monetary Policy Committee (MPC) in an attempt to unlock the delayed International Monetary Fund (IMF) loan programme, reported the News International.
The IMF and Pakistan were supposed to sign a staff-level deal on 9 February.
The Shehbaz Sharif-led government is adopting desperate measures to obtain much-needed funds, but the IMF is not pleased with the incumbent government's previous actions.
According to sources, cited by The News International, the IMF requested that Pakistan raise its interest rate by 4 per cent. According to the interest rate, the fund believed that inflation in Pakistan was lower.
The SBP recently increased interest rates by 2 per cent, but the IMF is now forcing Islamabad to raise rates by 2 per cent again.
The SBP's MPC is expected to convene on April 4 to review the interest rate and IMF demand.
According to the sources, as quoted by The News International, the SBP will raise interest r by 2 per cent, as negotiated with the IMF.ates
The State Bank of Pakistan (SBP) increased the monetary policy rate by 300 basis points to 20 per cent in March.
"This decision reflects a deterioration in the inflation outlook and expectations as a result of recent external and fiscal adjustments. The MPC believes that this outlook calls for a strong policy response to anchor inflation expectations around the medium-term target of 5-7 per cent," according to the statement, The News International reported.
Notably, the International Monetary Fund (IMF) is in a dilemma regarding the sustainability of its funding in Pakistan, which would be difficult to defend in front of the Executive Directors of the Extended Fund Facility (EFF), reported Islam Khabar.
Another issue is that the fund must address before disbursing the next tranche is Pakistan's unfulfilled commitment to provide financing on the occasion of the approval of the 7th and 8th reviews in August 2022. If the commitments on external financing needs are not met within the timeframe specified, the IMF's credibility is jeopardised.
According to a report published in Islam Khabar, Pakistan has implemented a series of policy measures, including higher taxes, higher energy prices, and raising interest rates to their highest level in 25 years in order to unlock funding from the IMF's stalled USD 6.5 billion lending programme. However, it has become a difficult situation for Pakistani authorities, who face a political uphill task ahead of the upcoming elections, which will determine the fate of the current government's commitments. The IMF believes that the current government may or may not be able to carry out the agreement it signs.
The political situation in Pakistan has become a factor in the deal's postponement. According to Prime Minister Shehbaz Sharif, Pakistan has met the most stringent IMF conditions, resulting in the burning of the masses. He also warned that the burden on 'hardworking Pakistanis' would increase in the days ahead as a result of these conditions. The IMF tranche is still out of reach.
Pakistan survived the Covid-19 pandemic, the Taliban takeover of Afghanistan, inflation, and supply chain disruptions caused by the Russia-Ukraine conflict. The current crisis is so severe that foreign banks have refused to confirm letters of credit (LCs) for even crude oil imports. The only foreign bank currently confirming LCs for Pakistani crude oil imports is Saudi Arabia's Al-Rajhi Bank.
According to Islam Khabar, Foreign Minister Bilawal Bhutto Zardari also said that the IMF is not treating Pakistan fairly, claiming that the country is "in a perfect storm" of crisis. Islasmabad's delaying tactics, motivated by a fear of making difficult economic decisions before the elections, have done more harm than good.
However, the future is less certain. According to State Bank of Pakistan Governor Jameel Ahmad, the country's central bank, Pakistan must repay approximately USD 3 billion in debt by June, with an additional USD 4 billion expected to be rolled over. An earlier loan rollover from the Industrial and Commercial Bank of China helped to relieve pressure on Pakistan. This year, the Pakistani rupee has lost nearly 20 per cent of its value. According to Fitch Ratings, Pakistan's current rating indicates that default is a real possibility.
Critics claim that Pakistan has grown accustomed to being trapped in an unsustainable debt cycle. The IMF's success in Egypt, which is based on policy and structural changes, could serve as a model for structural reforms in Pakistan. Cases of IMF lending in Serbia and Iceland are similar, Islam Khabar reported. (ANI)