Manitoba Daily

Monday, November 29, 2021

Pakistan’s borrowing request is rejected by the International Monetary Fund

Key takeaways:

  • Pakistan’s proposal to keep the door open for borrowing from the central bank was denied by the IMF.
  • The IMF ruled down Pakistan’s request to allow the country to borrow up to 2% of its GDP in a fiscal year. 

Amid Pakistan’s continuous financial troubles, the International Monetary Fund (IMF) has rejected Pakistan’s request to maintain a door open for borrowing from the central bank.

According to The Express Tribune, the international financial institution based in Washington did not agree on any meaningful accountability for the State Bank of Pakistan (SBP).

According to a Pakistani newspaper, the central bank’s profit would not be paid to the federal government in full unless the SBP obtains insurance to back its monetary liabilities. 

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According to the article, at least 20% of the state bank’s profit would subsequently be deposited in the central bank’s coffers until the desired cover is obtained.

The IMF ruled down Pakistan’s request to allow the country to borrow up to 2% of its GDP in a fiscal year. According to the Tribune article, despite the government’s belief that it had a constitutional right to take loans to fund its activities, the IMF refused to budge.

International Monetary Fund rejects Pakistan's borrowing request

Although government borrowing from the state bank is prohibited under the IMF programme until September 2022, the government has given up and agreed to close this door permanently through the law, according to the report.

A draught of the measure passed in March this year stated, “The bank shall not offer any direct credit to or guarantee any debts of the government, any government-owned entity, or any other public organization.”

According to the article, the bank will not buy securities issued by the government, any government-owned entity, or any other public entity in the primary market. According to the draught, the bank may purchase such securities on the secondary market.

According to the Tribune, the government’s inability to borrow from the central bank has left it at the mercy of commercial banks, who have recently requested interest rates far higher than the key policy rate.

Source: Business Standard

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