Pakistan assures IMF of rate hikes, currency easing to manage external pressures

Pakistan has assured the International Monetary Fund (IMF) that it is prepared to raise interest rates and ease controls on foreign exchange movement to manage economic pressures linked to the Middle East conflict, according to a news report. 

The commitments were made during discussions aimed at securing a staff-level agreement for the release of a $1 billion tranche under the $7 billion programme.

Officials said the central bank has indicated it will maintain a tight monetary policy stance and stands ready to increase the policy rate, currently at 10.5%, if required. The approach is aimed at managing rising import costs and stabilising the external account amid higher global oil prices.

Authorities also informed the IMF that restrictions on foreign currency movement would be gradually relaxed. A roadmap will be developed to phase out these controls, with timelines and indicators for eventual liberalisation of the foreign exchange regime.

The IMF has set a condition requiring the removal of such restrictions by March next year, subject to macroeconomic and financial stability. Officials said the move is intended to support private sector activity and attract foreign investment.

The central bank has indicated it will use the exchange rate as a buffer to absorb external shocks and discourage imports, while continuing efforts to rebuild foreign exchange reserves through market operations.

Data shows imports declined 5.4 percent to $5 billion in March on a year-on-year basis. However, for July–March FY2026, imports increased 6.6 percent to $50.5 billion, while exports fell 8 percent to $22.7 billion, resulting in a trade deficit of $27.8 billion.

The government has estimated that higher oil prices could increase the monthly energy import bill by $300 million to $500 million if global crude prices remain elevated.

Officials also said the central bank will ensure availability of foreign exchange for imports by facilitating the opening of letters of credit without placing undue pressure on banks’ balance sheets.

On remittances, the government assured the IMF that subsidies would be limited to budgeted allocations. Authorities are working on a framework to assess the cost of such schemes and ensure that spending does not exceed fiscal limits.

The finance ministry and the State Bank are expected to finalise an action plan to manage remittance-related subsidies, while maintaining inflows as a key source of external financing.