Fitch Ratings Agency has degraded Pakistan in foreign currency issuer default rating to “CCC-” a condition like Sri Lanka. International Monetary Fund estimated a financing gap of $ 7 billion compared to the projected $ 5 billion in 2023. The foreign exchange reserves of Pakistan are $ 3.1 billion, which officials hope to reach $10 billion by June 2023. Pakistan has received $ 1.3 billion from Chinese banks.
IMF opened Pandora’s box with the new four conditions at the eleventh hour before organizing a Staff Level Agreement (SLA) to receive the tranche of $1.2 billion. IMF condition caused a depreciation in PKR by 19 rupees in a day from 266.1115 to 285.0895 against the dollar. IMF requirements are
- IMF asked the State Bank of Pakistan to raise the interest rate.
- A floating exchange rate means a daily determination of the exchange rate.
- Get written approval from friendly countries for financial support.
- An increase of 3.39 rupees per unit in consumer electricity rates through finance bill in coming years, not the already announced by the govt for four months.
Pakistan’s officials are taking it as maltreatment and have linked it with the situation of 1998 when denuclearization is the aim of the west. Pakistan faced the same situation.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan held a meeting in an emergency on 2nd March, which was to be held on 16th March. SBP raised the interest rate by 300 basis points (bps), and the interest rate reached the highest level of 20% in the last 26 years; the same rate was in October 1996. Since January 2022, 1050 basis points have been increased in the previous rate. The next meeting will be on 4th April 2023.
Pakistan’s government has fulfilled another requirement by the IMF and lifted the subsidy on agriculture and five zero-rated sectors from 1st March 2023 to save RS 65 billion. The subsidy will save fifty-three billion rupees from zero-rated sectors and 12 billion rupees from agriculture in March-June 2023.
Levy of taxes will affect the low-income group. Moody’s economist predicted that inflation in the first two quarters of 2023 could be 33%. The Consumer Price Index reached its highest level of 31.5% since 1974.
IMF conditions caused 18.978 rupees depreciation in PKR in a day, and with the fulfillment of the conditions of the IMF, the rupee reached 278.93 rupees with a recovery of 6.159 rupees.
IMF opposes the levy of flood tax on the wealthy class by stating it is against the standards.
Human Rights Watch (HRW) stated that IMF policies are against the poor people and need to take measures with mutual consideration with Pakistan and suggested increasing the Benazir Income Support Program (BISP) by RS. 40 billion to cover more people.
Imran Khan criticized the IMF loan agreement and said it would be a situation like “Treatment of Cancer with Disprin.” It will just be the burden of loans, and Mini Budget is not the solution; Pakistan needs to conduct the election and reforms.
Wajid Bukhari, General Secretary of Large Steel Producers (PALSP), stated that the steel industry is already facing issues in opening LCs. A hike of 300 bps in the interest rate and an electricity surge of 3.23 per unit is increasing the cost by 6000 rupees and 4000 rupees per ton, respectively. Rebar prices will increase to 325,000 rupees per ton. The steel industry is bearing losses; half has already shut down its mills. He requested the government to decrease the interest rate, provide electricity at low prices and ensure the availability of raw materials by solving LCs issues.
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