Pakistan has committed to major economic policy changes, including ending currency controls and potentially increasing interest rates, in order to unlock the next tranche of funding from the International Monetary Fund (IMF). The move comes as the country faces rising inflation and external pressures linked to the ongoing Middle East crisis.
According to officials, the government has assured the IMF that it is ready to allow greater flexibility in the exchange rate and tighten monetary policy if needed. These steps are aimed at stabilizing the economy and paving the way for the release of a $1 billion installment under the ongoing $7 billion loan programme.
Sources within the central bank indicated that policymakers are prepared to raise interest rates to manage inflation, which is expected to increase due to higher global oil prices and supply disruptions. The current policy rate stands at 10.5%, but authorities have signaled readiness to adjust it depending on economic conditions.
Recent data shows inflation rose to 7.3% in March, marking a 17-month high. At the same time, Pakistan’s import bill remains under pressure, with energy costs expected to increase significantly if global oil prices remain elevated. While imports declined slightly in March to $5 billion, overall figures for the fiscal year show a widening trade gap, with imports reaching $50.5 billion and exports falling to $22.7 billion.
To address these challenges, the government has agreed to gradually lift restrictions on foreign exchange transactions. The IMF has introduced a condition requiring Pakistan to develop a clear roadmap for removing these controls by March next year. The plan will include timelines and performance indicators to ensure a smooth transition toward a more open currency regime.
Officials believe that easing currency restrictions could boost investor confidence and support private sector growth. However, concerns remain about potential volatility in the foreign exchange market, which is relatively small and sensitive to sudden changes.
The State Bank of Pakistan has also pledged to use the exchange rate as a tool to absorb economic shocks and rebuild foreign reserves. Measures are being considered to ensure smooth financing for imports without placing excessive strain on the banking sector.
In addition, the government has reassured the IMF that subsidies on foreign remittances will be strictly limited to allocated budget amounts. A detailed report on the cost of these subsidies is expected soon, as part of broader efforts to improve fiscal discipline.
Overall, Pakistan’s commitments reflect a shift toward stricter economic management and greater market flexibility. These reforms are seen as essential for securing IMF support and stabilizing the country’s fragile economy in the face of global uncertainties.
