IMF Calls for Higher Pakistan Rates If State Asset Sales Delayed

Pakistan should be prepared to raise interest rates from an 18-month high if inflows such as those expected from state asset sales are delayed, the International Monetary Fund said in a report.

While Pakistan plans to hire financial advisers by the third week of April, any lag may push completion of the transactions beyond June, the IMF said in the statement. Other steps that must be considered include bigger foreign-exchange purchases, it said in the second review following approval of a $6.6 billion loan in September to bolster an economy suffering from power shortages and a Taliban insurgency.

“Program performance is mostly positive,” the Washington-based lender said in the report, after rating it as “satisfactory” in a previous review. “The balance of payments situation remains difficult, but reserves are beginning to recover.”

The IMF approved a second tranche of $555.6 million and Pakistan’s central bank kept its benchmark rate unchanged this month amid a record rally for the rupee. Pakistan needs to attract as much as $3 billion by June to meet IMF targets, according to the central bank’s monetary policy director.

Pakistan plans to initially raise 137 billion rupees ($1.4 billion) by selling shares in Oil and Gas Development Co., Pakistan Petroleum Ltd. and United Bank Ltd, the finance ministry said in a March 20 statement. It projects another $500 million this year from the country’s first overseas debt sale since 2007, plus proceeds from auctioning third-generation mobile-phone licenses due next month.

Euro Bond

The government has also raised 444 billion rupees through Pakistan Investment Bond auctions apart from a grant from Saudi Arabia this year, the IMF said. An earlier, partially disbursed $11.3 billion IMF loan expired in September 2011 after Pakistan failed to meet the conditions attached to it.

While the approval of the latest loan tranche is credit positive, the government’s weak record in implementation means adhering to the IMF’s targets may be challenging, Moody’s Investors Service said in a March 26 report. Pakistan’s planned euro bond issuance may face difficulties if investors avoid riskier emerging-market assets, the IMF said in today’s statement.

“I don’t think the stake sales will be delayed,” Khurram Schehzad, chief investment officer at Karachi-based Lakson Investments Ltd., said in a phone interview today. “The plan is on track.”

Pakistan left its benchmark interest rate unchanged for the second straight meeting this month after raising it by 100 basis points to 10 percent since September, the highest since October 2012. Hamza Malik, the central bank’s director of monetary policy, said in an interview last month that the authority will keep borrowing costs unchanged if the government meets its IMF targets.

Foreign Reserves

Finance Minister Ishaq Dar said March 12 the nation’s foreign currency reserves have climbed to $9.52 billion following international contributions of about $1.5 billion to the Pakistan Development Fund, compared with $8.3 billion at the end of 2013.

After losing 46 percent of its value over 10 straight years of declines, the rupee has surged 7.4 percent in 2014, the biggest gain in data compiled by Bloomberg that goes back to 1988. The currency’s 7 percent advance this month is the best performance among all currencies tracked by Bloomberg.

To contact the reporter on this story: Faseeh Mangi in Karachi at fmangi@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Jeanette Rodrigues, Dick Schumacher

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