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PAK | Nov 25, 2021

IMF rejects Pakistan’s borrowing plea

/ Our Today

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Pakistan wants to take loans equal to two per cent of GDP in a fiscal year

The International Monetary Fund (IMF) has rejected Pakistan’s request to keep a door open for borrowing from the country’s central bank, amid the ongoing financial woes in the country.

The IMF turned down the Pakistan government’s proposal to allow it to take loans equal to two per cent of the gross domestic product (GDP) in a fiscal year.

In turning down Pakistan’s request, the IMF expressed its disagreement on any meaningful accountability of the State Bank of Pakistan (SBP).

The Express Tribune is reporting that as a result of the IMF’s decision, SBP’s profit would not be transferred 100 per cent to the federal government until it gets cover to back its monetary liabilities.

The Pakistani daily reported at least 20 per cent of the state bank’s profit will now remain in the central bank’s coffers until it gets the desired cover.

The Washington-based multilateral funding institutions did not budge despite the government’s opinion that it was its constitutional right to take loans to finance its operations, the Tribune report said.

Although there is a ban on government borrowing from the state bank under the IMF programme until September 2022, the Pakistani government has now reportedly given up and agreed to permanently close this door through legislation.

“The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity,” said a draft of the bill approved in March this year.

The Express Tribune report added that the bank shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market.

However, according to the draft bill, the bank may purchase such securities in the secondary market,

The Tribune is reporting that the ban on borrowing from the central bank has left the government at the mercy of commercial banks that have in recent weeks demanded an interest rate that is significantly higher than the key policy rate.

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