The government of Pakistan has agreed to raise the policy (interest) rate, which now stands at 17%, by 2% or 200 basis points in exchange for the International Monetary Fund (IMF) releasing $1.1 billion in essential funds as part of a $6.5 billion rescue package.
Based on the rates the government set in the auction to raise domestic debt, the increase has been made. The interest rate will rise to 19% as a result, almost missing the historical high of 19.5% established in October 1996.
According to sources in the Ministry of Finance, Islamabad and the IMF assessment mission had basically a technical-level discussion. According to them, it was anticipated that Islamabad would raise the interest rate by 2%.
It was noted said that most of the pre-conditions of the global money lenders had been fulfilled. According to sources, negotiations on a few power-related problems were nearing their conclusion, following which a staff-level agreement with the IMF would be reached.
Further information revealed that Pakistan had provided the IMF authorities with a thorough briefing on its sources of foreign exchange up until June.
Following the ninth review of the $6.5 billion bailout program, Pakistani officials and IMF employees completed their evaluations earlier this month without reaching a staff-level agreement. Nevertheless, all parties agreed on a number of possible measures which could potentially be utilized to reach a consensus.
The Pakistani authorities had hoped to gradually convince the IMF to implement the conditions during their 10-day mission, however, their hopes were not met as Pakistan agreed to implement the MEFP containing policy suggestions from the IMF, yet officials still held out hope for a staff-level agreement. There was a consensus to allow market forces to determine the rupee value, lift import restrictions, and allow the already imported goods to be cleared, and also to raise power tariffs and impose new taxes to secure the deal. Nevertheless, due to the severity of the economic crisis, all agreed measures would be difficult for the majority of the Pakistani population