Pakistan Reader# 562, 3 March 2023
Femy Francis
On 2 March, Pakistan completed all priorities needed for the staff-level agreement with IMF to dodge sovereign default and secure the delayed USD 1.2 billion funding. The exchange rate is now allowed to move freely with a massive fall in Pakistan currency and a 10 per cent rise in power rates. The government and the SBP have been jointly working on monitoring performance criteria and indicative targets, giving the final touches before the ninth review. IMF source informs that they were not changing the goalpost and that Pakistan is delaying the process by not taking the much-needed structural reforms, saying “The IMF asks Pakistan to stick to the policy of market-based exchange rate, erase the monster of circular debt through the imposition of surcharge and tighten the monetary policy.”
On 2 March, Federal Finance Minister Ishaq Dar announced that the Staff level agreement with IMF would be completed by next week. This came as a response to the ongoing discussion online over Pakistan “may default” comments. He claimed that SBP foreign exchange reserves were booming with USD 1 billion in addition, a stark difference since February. He believes that as all foreign commercial banks have started extending facilities to Pakistan, claiming they are slowly moving in the right direction. This statement came in right after the announcement of Pakistan currency falling to a new low of PKR 290.80 against the dollar. A Washington insider stated that it’s expected that Pakistan will be able to strike a deal will IMF though it's hard to say when.
On 2 March, the State Bank of Pakistan (SBP) raised the key interest rate by 3 points bringing it to 20 per cent. This level was last seen in 1996 with which the massive hike in 300 basic points also exceeded investors' aggregate. There is an expected further rise in inflation, with the next month’s average ranging from 27-29 per cent. High interest by banks is warranted as they raise the rates out of necessity when inflation is out of bounds. The high-interest rate is also expected to help reduce inflation by 5-7 per cent by the end of 2025. The daily wage earners would now be dually impacted by the devaluation of the currency and inflation, lowering consumer’s purchasing powers.
References
Shahid Iqbal, “Interest rate soars to historic high” Dawn, 3 March 2023
Erum Zaidi, “Desperate for IMF bailout: Second time in history, SBP hikes interest rate to 20pc,” The News International, 3 March 2023
KhaleeqKiani, “Govt swallows last bitter pills to keep IMF sweet” Dawn, 3 March 2023
Mehtab Haider, “Pakistan, IMF rule out the possibility of ending programme at this stage ” The News International, 3 March 2023
“Staff-level agreement with IMF expected next week: Dar” The Express Tribune, 2 March 2023
Anwar Iqbal, “Deal ‘will be done, but difficult to say when,” Dawn, 3 March 2023
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