Pakistan’s central bank must “actively” work to increase foreign exchange reserves, including adjusting interest rates, the top International Monetary Fund official to the country said.
“Pakistan needs to tap inflows including remittances, export revenue and capital transfers,” Pakistan mission head Jeffrey Franks said in a phone interview from Washington yesterday. Financial support from other international organizations likely to arrive in the next six to nine months will be “a positive,” he said.
The IMF approved a $6.6 billion loan in September to help Prime Minister Nawaz Sharif’s government stabilize the economy, which has suffered from a Taliban insurgency and power shortages. While Pakistan’s performance in the first review was mostly satisfactory, the IMF said foreign exchange reserves fell to a “critically low” level.
Sharif has changed energy policies to tackle power shortages and plans to raise as much as $1 billion in a bond issue abroad to raise funds. Currency reserves held by the State Bank of Pakistan have fallen about 60 percent to $3.7 billion on Jan. 2 from a year earlier, central bank data show.
The central bank has raised the benchmark interest rate by 100 basis points since the loan’s approval to 10 percent. The IMF faulted authorities for failing to prioritize rebuilding reserves in the review released on Jan. 3 and said they will remain tight for the next two or three quarters.
“The SBP must unhesitatingly use every policy tool at its disposal to boost reserves, including adjusting the policy rate, intervening to purchase reserves on the spot market, and allowing greater flexibility of the exchange rate,” it said.
Pakistan’s rupee fell 7.7 percent against the dollar last year, among the worst performers in Asia, according to data compiled by Bloomberg.
An earlier, partially disbursed $11.3 billion IMF program expired in September 2011 after Pakistan failed to meet the conditions attached to it.