The International Monetary Fund (IMF) and State Bank of Pakistan officials (SBP) held a round of talks about the tightening of monetary policy and building up foreign exchange reserves by the end of June 2023.
According to details, IMF demanded a significant increase in the interest rate during the recent visit. Sources said that the central bank was trying to convince the IMF to agree on a lower rate, but no rate could be finalized between both sides.
Also Read: IMF Tough Conditions: Government Increases 18% GST on Cigarettes & Tobacco
If the Central Bank will accept the IMF’s demand then it will push the interest rate to the highest level of around 20%, breaking the previous record of 19.5% in1996.
The central bank was making strategies to fulfill the IMF’s demand to increase the rate before the next Monetary Policy Committee (MPC) meeting.
Pakistan’s foreign exchange reserves, held by the SBP, stood at $3.1 billion after it went up by $276 million till 10th February 2023.
The IMF has also asked the SBP for jacking up the policy rate by 300 to 400 basis points in order to move toward the interest rate from a negative to a positive trajectory.
But the SBP officials made it clear that the independent Monetary Policy Committee (MPC) was established under the SBP’s Amendment Act, and the forum was empowered to take a decision keeping in view the macroeconomic fundamentals.
‘Mini-Budget’
Earlier Federal Finance Minister Ishaq Dar introduced the Finance Bill (Supplementary) the “mini-budget” in the National Assembly in order to meet IMF Conditions for the approval of the loan program needed to avoid a default.
While addressing the Parliament, the finance minister compared the performance of the previous PML-N and PTI governments.
The finance minister also announces to increase General Sales Tax GST rate from 17 to 18% and increasing the Federal Excise Duty (FED) on cigarettes and Tobacco in order to fetch an additional Rs115 billion out of Rs170 billion agreed to by Pakistan in line with the IMF conditions.
Mini-budget proposals
- Govt has increased GST on luxury items from 17% to 25%
- Increase in federal excise duty on cigarettes and fizzy drinks.
- Increase in federal excise duty on cement
- GST has been increased from 17pc to 18pc
- Benazir Income Support Programme (BISP) handouts increased to Rs400bn from Rs360bn
- FDE on business and first-class air tickets to now be Rs20,000 or 50% — whichever is higher
- GST is to not be imposed on essential goods.
Credible Sources at the Ministry of Finance told that they expect the bill to be ascended by Thursday morning, which will pave the way not only for the IMF monies but funds from multi-laterals and bilateral.
According to the latest details, A session of the Senate has also been summoned to move the bill to the upper house. After the passage of the finance bill from both houses, the bill will be then sent to President Arif Alvi for approval.
IMF Virtual Talks
Virtual talks between the International Monetary Fund (IMF) and Pakistan for the completion of the ninth review of the $7 billion loan program began a day earlier before presenting Finance Bill.
The officials of the finance ministry would brief the IMF about the implementation of the conditions set by them for the revival of the loan program. it was reported that the International Monetary Fund (IMF) and Pakistan moved closer to the revival of the $7 billion Extended Fund Facility (EFF) as the IMF responded to the Memorandum of Economic and Financial Policies (MEFP) draft and soon the revival of $7 billion Extended Fund Facility (EFF) will be completed.
