ISLAMABAD: The International Monetary Fund (IMF) has asked Pakistan to increase interest rate in order to build up foreign exchange reserves by the end of June 2023.
Pakistan’s foreign exchange reserves, held by the SBP, stood at $3.1 billion after it went up by $276 million till February 10, 2023.
Pakistan will need to obtain at least $17–18 billion in four and a half months in order to comply with the IMF’s recommendations to increase foreign exchange reserves to $12 billion until the end of June 2023. It included the need for $5 billion in repayment of external debt, $3–4 billion in financing for the current account deficit (CAD), and $8–9 billion for increasing foreign exchange reserves through June 30, 2023.
The IMF has also asked the SBP for jacking up the policy rate by 300 to 400 basis points in order to move towards the interest rate from a negative to a positive trajectory, The News reported on Saturday.
However, the SBP officials made it clear that the independent Monetary Policy Committee (MPC) was created under the SBP’s Amendment Act and that the forum was given the authority to make decisions while taking into account the macroeconomic factors.
Pakistan asked the IMF review mission to strike the staff level agreement (SLA) next week before the IMF’s executive board meeting, expected in four to six weeks, a senior official of the finance ministry was quoted as saying in The News on Friday.
The Pakistani authorities are still hoping for striking a staff-level agreement next week, but a gap still existed on a projection of the external financing front.
The decision to take each of these measures lay with Pakistani authorities, but at this point the most crucial ones remained unanswered due to the need to obtain approval from all international and bilateral creditors in order to meet the program’s ominous external finance requirements. There is no way to extend the EFF’s IMF program after its current expiration date of June 30, 2023.
