Pakistan accepts IMF pre-condition to increase interest rate by 2%

Pakistan has agreed to increase its policy (interest) rate by two percent or 200 basis points, as a pre-condition for the release of $1.1 billion in critical funding from the International Monetary Fund (IMF). The funding is part of a $6.5 billion bailout package.

The increase is based on rates set by the government in an auction to raise domestic debt and will push the interest rate to 19 per cent. This is just below the previous record of 19.5 per cent set in October 1996.

Sources from the Ministry of Finance stated that there had been technical-level discussions between Islamabad and the IMF review mission and that it was expected that Islamabad would increase the interest rate by two percent. Most of the pre-conditions set by the IMF had been fulfilled, according to these sources.

Sources also indicated that discussions on some issues related to the power sector were in the final stages, after which a staff-level agreement with the IMF would be reached. Additionally, Pakistan provided a detailed briefing to IMF officials on the sources of foreign exchange until June.