Pakistan Govt Increase Interest Rate By 200bps

BUSINESS:Pakistan has agreed to raise the policy (interest) rate, which currently stands at 17%, by 2%, or 200 basis points, as another IMF precondition for the release of $1.1 billion in critical funding, which is part of the $6.5 billion bailout package.

The rates the government set during the auction to raise domestic debt are the basis for the increase. The interest rate will rise to 19% as a result, just below the record of 19.5% set in October 1996.

According to sources in the Ministry of Finance, Islamabad and the IMF review mission had virtually had a technical discussion. They stated that Islamabad was anticipated to raise the interest rate by 2%.

It was noted that most of the global money lender’s prerequisites had been met.

According to sources, the staff-level agreement with the IMF would be reached after the final stage of discussion on some power sector issues had been reached.

In addition, it was discovered that Pakistan had provided the IMF with a comprehensive update on its foreign exchange sources up until June.

Without a staff-level agreement, the relevant Pakistani officials and IMF personnel completed the ninth review of the $6.5 billion bailout package earlier this month. However, a set of measures that could still help seal the deal were agreed upon by both parties.

During the IMF mission’s 10-day stay, the Pakistani authorities’ hopes that they would be able to persuade the IMF to implement the conditions gradually were dashed.

The IMF’s policy recommendations were included in the Memorandum of Economic and Financial Policies (MEFP), which Pakistan agreed to implement. The staff-level agreement was still a goal for officials.

There was a general agreement that the rupee’s value should be left to the market, that import restrictions should be lifted, and that goods that had already been imported should be cleared.

In addition, new taxes and an increase in the power tariff were planned to make the deal possible. However, every agreed-upon measure would be difficult for the vast majority of Pakistanis due to the severity of the economic crisis.