Cash-strapped Pakistan will have no need to go back to the IMF in the future once it receives the last loan programme of $6 billion from the global lender, governor of the State Bank of Pakistan has said.
Reza Baqir said the recent structural reforms implemented under commitments made with the International Monetary Fund (IMF) had started providing much-needed support to the weak economy to enable it to stand on its own feet.
“The goal is to have foreign exchange reserves that are sufficiently high and with that we will not go back to the IMF for another programme,” he was quoted as saying by ‘The Express Tribune’.
The IMF approved the latest 39-month-long loan programme in July, when the lender released the first tranche of $991.4 million of the total loan programme of $6 billion.
Mr. Baqir was also appointed State Bank of Pakistan (SBP) Chief when negotiations were going on with the IMF. He was working as the Chief of IMF in Egypt before switching to Pakistan.
He said in his lecture on ‘Pakistan Economy: Macroeconomic Challenges and Outlook’ at IBA University of Karachi on Monday that maintaining high reserves remained the most crucial challenge to the economy to get rid of the IMF in the future.
The reforms introduced to determine the rupee-dollar exchange rate would help in maintaining the reserves at an optimal level, he said.
“Yes, we entrenched a market-based exchange rate system, which means the rate will be determined by the supply and demand (of dollars in the market) which is perhaps one of the key institutional changes that have happened in the reform process,” he said.
Earlier, the central bank had control over the rupee-dollar exchange rate.
It used to fix the rate but the practice caused depletion in the country’s foreign currency reserves almost every time after Islamabad completed the IMF loan programme since 1995. This forced Pakistan to return to the IMF time and again, Mr. Baqir said.
The central bank still has the option to intervene in the market to control exchange rate in case it finds market participants are involved in manipulating the market-based exchange rate.
Mr. Baqir highlighted three key elements for running the economy independently, going forward.
He talked extensively about having sufficiently high foreign currency reserves to permanently quit the IMF.
The two other elements to avoid the IMF included maintaining the “fiscal discipline” through zero government borrowing from the central bank and raising domestic saving and investment rates.
