International Monetary Fund rejects Pakistan's borrowing request

The International Monetary Fund (IMF) has rejected Pakistan's request to keep a door open for borrowing from the central bank amid the ongoing financial woes in the country.

The international financial institution based in Washington also did not agree on any meaningful accountability of the State Bank of Pakistan (SBP), The Express Tribune reported.

The Pakistani daily said the central bank's profit would also not be transferred 100 per cent to the federal government until the SBP gets cover to back its monetary liabilities. According to the report, at least 20 per cent of the state bank's profit will now remain in the central bank's coffers until it gets the desired cover.

IMF turned down the Pakistan government's proposal to allow it to take loans equal to 2 per cent of the gross domestic product (GDP) in a fiscal year. The IMF did not budge despite the government's opinion that it was its constitutional right to take loans to finance its operations, the Tribune report said.

Although there is a ban on government borrowing from the state bank under the IMF programme till September 2022, the government has now given up and agreed to permanently close this door through legislation, the report said.

"The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity," said a draft of the bill approved in March this year.

The report added that the bank shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market. The bank may purchase such securities in the secondary market, according to the draft.

According to the Tribune report, the ban on borrowing from the central bank has left the government at the mercy of commercial banks that have in recent weeks demanded an interest rate that is significantly higher than the key policy rate.