Interest rate to be hiked by 200bps on IMF demand

ISLAMABAD: Pakistan has assured the International Monetary Fund (IMF) it will raise its policy rate by two percentage points (or 200 basis points) in order to meet the conditions set by the lender to revive the loan programme.

The sources aware of the development told Geo News that virtual negotiations with the IMF continued till late Saturday night, adding that officials from the Washington-based lender were “painstakingly reviewing” every aspect of agreement.

“Pakistan has agreed to raise its policy rate by two percent,” the sources said, which is currently at 17 percent.

The sources also added that details regarding reforms in the power sector are being finalised and after the settlement, a staff-level agreement will be signed.

The power sector has become one of the major stumbling blocks between Pakistan and the IMF.

Pakistan has also briefed the lender in detail on external financing till June, the sources said, adding that the IMF was also holding talks with the concerned countries for assurance.

No discussion was being held on the political situation of Pakistan, the sources further added.

Pakistani authorities have been negotiating with the IMF since early February over policy framework issues and are hoping to sign a staff-level agreement that will pave the way for more inflows from other bilateral and multilateral lenders.

Once the deal is signed, the lender will disburse a tranche of more than $1 billion from the $6.5 billion bailout agreed to in 2019.

Pakistan has already taken a string of measures, including adopting a market-based exchange rate, hike in fuel and power tariffs, withdrawal of subsidies and more taxation to generate revenue to bridge the fiscal deficit.

The strict measures are likely to further cool the economy and stoke inflation, which stood at 27.50% in January.

The South Asian country’s economy has been in turmoil and desperately needs external financing, with its foreign exchange reserves dipping to around $3 billion, barely enough for three weeks’ worth of imports.

Prime Minister Shehbaz Sharif said a day earlier that Pakistan has to unwillingly accept the strict conditions to provide a lifeline for an economy in turmoil.

He was speaking to top security officials at his office in Islamabad in a meeting that was telecast live.

“We have to accept unwillingly the strict conditions for the IMF deal,” he said, adding that an accord was still a “week, 10 days” away.

Longtime ally China this week announced refinancing of $700 million, according to the Finance Ministry.

Finance Minister Ishaq Dar on Friday said Pakistan’s central bank has received the money.

“Thank God,” he said in a tweet.