Pakistan passes IMF-backed law for central bank autonomy

ISLAMABAD, Jan 28 (Reuters) – Pakistan’s upper house of parliament on Friday put its seal on a law backed by the International Monetary Fund (IMF) to give the central bank more decision-making independence.

The new legislation, passed by a vote of 43 to 42, was one of several conditions set by the IMF for the resumption of a stalled $6 billion financing program. The lower house passed the law earlier this month. Read more

The bill gives the bank independent powers to control price stability and monetary policy decisions, as well as a guaranteed term for its governor.

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It also prevents the government from borrowing from the bank.

The IMF’s review committee will meet on February 2 to discuss a pending tranche of $1 billion.

To fulfill its conditions, Pakistan also passed a mid-year budget to end sales tax exemptions as part of the fiscal tightening to raise 343 billion rupees ($1.93 billion) for the 2021-22 financial year. Read more

Foreign inflows are critical to Pakistan’s economy as its external account deficit has widened due to soaring global commodity prices, particularly oil, which accounts for about a third of the country’s payments.

Foreign exchange reserves are also an essential buffer to stabilize the rupee. Pakistan only adopted a market-based exchange rate last year, which led to a sharp depreciation of the rupee.

Earlier this week, Pakistan raised $1 billion with a 7-year sukuk, offering an interest rate of 7.95%, the highest yield the South Asian nation has ever paid on an Islamic bond .

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Reporting by Asif Shahzad; Editing by Andrew Cawthorne

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