Pakistan raises its interest rates ahead of IMF bailout

The State Bank of Pakistan raised the discount rate at which it lends to commercial banks to 15 percent, Governor Shamshad Akhtar said today in Karachi. The increase was part of conditions for an IMF loan, said Ahsan Iqbal, a spokesman for the Pakistan Muslim League-Nawaz party and former deputy chairman of the Finance Ministry’s planning commission.

“It was the toughest decision of my life,” Akhtar told reporters. “The IMF program will be good for Pakistan as we need to be disciplined.”

Pakistan has been forced to seek funds from the IMF after its foreign reserves shrunk to US$3.5 billion as of Nov. 1 from US$14.2 billion a year ago, raising concern the country will not be able to pay the US$3 billion in debt-servicing costs due in the next 12 months. Higher borrowing costs may also tame inflation, which accelerated to near a three-decade high in October. Pakistan’s rupee rose 0.03 percent to 80.525 per dollar.

Consumer prices in Pakistan jumped 25 percent in October from a year earlier, after gaining 23.9 percent in September. The central bank is aiming to keep average inflation at 12 percent in the fiscal year that started July 1, the same as the previous 12-month period.

Pakistan joins Iceland and the Ukraine in raising interest rates in order to receive an IMF bailout. That’s in contrast with the actions of central banks in the U.S., Europe and elsewhere in Asia, which have been lowering borrowing costs to stave off a global recession.

Pakistan needs US$10 billion over the next two years to avoid defaulting on its debt, according to IMF estimates. Pakistan ended its last IMF program in 2004.

Subscribe to The China Post and save 25%. Click here

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email