Almost two months after the expected Staff-Level Agreement was expected to be signed between Pakistan and the IMF, we are still awaiting final confirmation. It is now being reported that the IMF has once again added another condition to the mix—increasing the interest rates to the original recommendation of 4 percent.
The demand in itself is not new—the original recommendation of the IMF was for the State Bank to increase the interest rate by 4 percent, of which the government only increased 2. The remaining 2 percent has now been attached to the future of the SLA, which means that the government has no choice but to agree to this and make the change.
It is clear that the government is trying its hardest to retain some control over monetary and fiscal decisions despite the IMF’s insistence, but we are running out of options. The government has recently managed to bring small amounts of funding to Pakistan through friendly injections, but this will not be enough, nor are there many options left for more funding to be brought in.
The IMF programme is a necessary evil and an extended delay in unlocking these funds is only causing our economic outlook to look grimmer. The government must raise the interest rate at this point. If economic slowdown is the fear, then the blocking of letters of credit for importing raw materials has already done enough damage to not fear a further shutdown in industry and production. Increasing interest rates in a time of global economic downturn is expected, and if it unlocks the IMF funds, then the government can move towards other policy measures to try and kickstart some needed financial and economic activity. Having a policy that essentially has us stuck in the middle is of no benefit—we must commit fully to one direction if we are to head toward recovery.
