Amid the ongoing financial difficulties in Pakistan, the International Monetary Fund (IMF) rejected Islamabad’s request to keep the door open to borrowing from the central bank and also did not agree to a meaningful responsibility for the State Bank of Pakistan (SBP), ANI reported, citing The Express Tribune. As the Pakistani Daily reports, central bank profits would not be fully returned to the federal government unless the SBP obtains hedge to cover its monetary liabilities. At least 20% of the state bank’s profits would now be kept in the coffers of the IMF’s central bank until the desired coverage is obtained, it seems.
In addition, the IMF rejected Pakistan’s proposal to allow it to borrow up to 2% of its gross domestic product (GDP) in a fiscal year. According to the report, the IMF’s rejection comes despite the Pakistani government’s belief that it had a constitutional right to borrow to finance its operations. Although the government is prohibited from borrowing from the state bank under the IMF program until September 2022, the government has already given up and agreed to close that door permanently by law, according to the report.
The bank will not buy securities issued by the government, any public entity or any other public body in the primary market. The draft further stated that the bank could purchase such securities on the secondary market. According to ANI, the ban on borrowing from the central bank has placed the government at the mercy of commercial banks, which have recently demanded interest rates well above the policy rate.
However, the IMF said on Monday that weeks of negotiations with Pakistan had resulted in an agreement in principle to relaunch a $ 6 billion economic bailout for the Islamic country. According to a statement released by the International Monetary Fund, under the new proposal, the IMF will release about $ 1 billion to Pakistan, increasing the total bailout disbursement from $ 6 billion to around $ 3 billion since 2019. This month’s meetings resulted in an agreement “subject to the approval of the Board of Directors, following the implementation of prior actions, particularly in the area of fiscal and institutional reforms,” the statement said.
Pakistan’s financial difficulties
In April 2020, the IMF allocated $ 1.4 billion to Pakistan to help it cope with an economic crisis caused by an increase in the number of deaths from coronaviruses. Since last year, at least 28,663 Pakistanis have lost their lives to COVID-19, and around 1.2 million have tested positive for the new virus. Analysts say the fund wants Pakistan to further reduce its budget deficit, increase electricity and gasoline costs and fight money laundering and corruption. In recent weeks, the government has met most of the IMF’s criteria, but this has made Prime Minister Imran Khan extremely unpopular with the public as inflation and the price of essential foods have skyrocketed, according to AP.
Officials say the delay in reaching a deal between Pakistan and the IMF was caused by strained relations between Pakistan and the United States. Since Khan took office, US President Joe Biden has avoided contacting him. This year, Khan has publicly refused to provide Washington with bases of operations in Afghanistan, it appears. The United States, which wields considerable power over the IMF, according to the news agency, said the fund should not finance the tens of billions of dollars in loans Pakistan obtained from China under the scheme. Beijing’s Belt and Road Global Initiative.
(With agency contributions) (Image: AP)
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