Image default

Pakistan likely to further raise Policy rate by 2% to secure IMF funding

ISLAMABAD:- (Raheel Hassan):- The Premier Shehbaz Sharif led Federal Govt likely to increase further raise policy rate by 2 percent in compliance of the International Monetary Fund (IMF) to revive the much-awaited loan program, it is learned.

Sources told the scribe on Wednesday that the Washington based Lender is insisting Pakistani authorities to further increase the policy rate by two percent to 22 percent to reach at Staff level Agreement. The Fund was insisting Pakistani authorities to increase the policy rate by 4 percent, however, the authorities were reluctant to increase the policy rate by same manner. The authorities promised with the Fund to fulfill the demand through phase wise, sources said.  

The Monetary Policy Committee of the State Bank of Pakistan is scheduled on 4th April 2023.

At present, the Policy rate is in Pakistan is at the highest level in the region. The Policy rate in India is 6.7 percent, 8.5 percent in Nepal, 17 percent in Sri Lanka it is 17 percent.

The IMF believes that the inflation, which is blinking on 27 percent, should be controlled through increasing of policy rate which is currently 20 percent. It also wants that the policy rate should be leveled with inflation rate, sources further told the scribe.   

It is pertinent to mention here that the inflation grew by almost 27 percent during the first eight months of the current fiscal year which is at the highest level.

Already, Pakistani authorities have jacked up the policy rate by 725 basis points during the last one year to tackle the inflation which is still uncontrolled. Last time, the Monetary Policy Committee of the State Bank has raised policy rate by 3 percent to 20 percent on 2nd March, 2023 which was scheduled 14th April 2023. This rate was the highest after 27 years as the policy rate was 20 percent in 1996.  

Tauseef Zaman, an Economist says that bank borrowing at 22 percent policy rate will not viable for private sector. This move will discourage industrialization and raise inflation rate that will create woes for the economic.

So far, Pakistan has taken several measures to secure much-awaited loan program of the IMF. The country has introduced tax measures worth Rs170 billion, removed subsidies and increased energy prices to curtail the circular debt of the energy, removed cape on exchange rate and increased the policy rate under the prior condition agreed with the IMF.

It is worth to mention here that Pakistan has been engaged in negotiations to revive the loan program IMF but has not succeeded as of now.

Despite the numbers of measures, the IMF could not agree to give time frame to ink the staff level agreement of ninth review meeting under the Extended Fund Facility (EFF). The EFF loan program was signed in 2019 during the PTI Govt. led by former Prime Minister Imran Khan for three years. The loan program was suspended at least four times including twice each during the PTI and PDM governments due to non-compliance of agreed conditions with the IMF by the Pakistani authorities.

Finance Minister Ishaq Dar, who had successfully completed to IMF loan program during 2013-17 in Nawaz regime, believes that the ongoing talks with IMF are toughest in the country’s history. Last week, he said that it is unprecedented behavior of the IMF with Pakistan and he can’t give date about the staff level agreement.

Pakistan will not get $1.1 billion from IMF but also get external financing from other bilateral or multilateral sources after the revival of the loan program of the IMF.

During the last one year, the forex reserves of the State Bank was decreased from $16.386 billion to $.2.91 billion on 3rd Feb 2023 as compared to Feb 2022 however, they increased to $4.3 billion on 3rd March 2023 mainly due to rollover loan $1.2 billion from Chinese Commercial Bank.

Due to repeated non-compliance by the Pakistani authorities, the IMF is making sure the all conditions of the program should be implemented before reaching at Staff Level agreement.

Related posts

Meeting with IMF chief was turning point for seuring .loan deal, Shehbaz Sharif


Govt retains petrol price for next fortnight at Rs214.80 per litre


Leave a Comment