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

 

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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.

    ReplyDelete
    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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