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Pakistan’s cent­ral bank has raised lend­ing rates to 20%.

 

Flag of Pakistan.
Pakistan’s cent­ral bank has raised lend­ing rates by 300 basis points to 20 per cent, the highest of any coun­try in Asia, as it struggles to con­tain rising prices and a deep­en­ing fin­an­cial crisis. The interest rate rise is one of the sev­eral meas­ures Pakistan hopes will free up a stalled tranche of about $1bn held back by the IMF under its $6.5bn fin­an­cing agree­ment with the coun­try, which ends in June this year. Pakistan’s cent­ral bank said, «anchor­ing infla­tion expect­a­tions is crit­ical and war­rants a strong policy response». On Wed­nes­day, the Pakistan Bur­eau of Stat­ist­ics repor­ted that infla­tion climbed to 31.5 per cent in Feb­ru­ary, up from 27.6 per cent a month earlier.

The coun­try has been hit hard by rising food and fuel prices and cata­strophic floods last year, a crisis com­poun­ded by polit­ical ten­sions that have weakened the gov­ern­ment of Prime Min­is­ter Shehbaz Sharif. The gov­ern­ment has intro­duced aus­ter­ity meas­ures and raised a VAT-style sales tax. In addition, Pakistan’s fail­ure to secure IMF fund­ing has caused the gov­ern­ment’s for­eign exchange reserves to sink to the equi­val­ent of less than the cost of a month’s imports. Rat­ing agency Moody’s this week cut Pakistan’s sov­er­eign credit rat­ing by two notches to «Caa3», say­ing the coun­try’s «increas­ingly fra­gile liquid­ity and external pos­i­tion» had sig­ni­fic­antly raised the risk of default.

Moody’s warned that «weak gov­ern­ment and heightened social risks impede Pakistan’s abil­ity to con­tinu­ally imple­ment the range of policies that would secure large amounts of fin­an­cing». «Pakistan’s eco­nomy is head­ing towards a very dan­ger­ous future. The new interest rate will make it impossible for many busi­nesses to afford bor­row­ings and still make money,» said Iht­isham ul Haque, a com­ment­ator on the Pakistan eco­nomy.

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  1. Dom3 March 2023 at 14:36

    The poor people of Pakistan are in for a horrible period. I don't see things getting better any time soon. Quite the opposite. With this new measure the government has almost made sure that many businesses will just go bankrupt.

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    Replies
    1. Charlie3 March 2023 at 14:49

      If they don’t get outside help there’s no way they are getting through this. I don’t even want to imagine what will happen to all those people that won’t have enough to eat…

      Delete

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