Pakistan raises interest rates

In order to avoid the possibility of Pakistan defaulting on its debt, the government is searching for an emergency loan from the International Monetary Fund (IMF) as well as increasing its benchmark interest rate by 2 percent yesterday, which will be the greatest increase in over ten years.

Pakistan would then join Iceland and the Ukraine in raising interest rates in order to gain an IMF bailout, even though throughout the euro zone, Asia and the US, interest rates are falling.

Governor Shamshad Akhtar said today that the central bank has raised the discount rate at which it lends to commercial banks to 15 percent, as it would be part of the conditions needed to secure a loan from the IMF.

The Governor did reveal in his speech today the difficulty of the task, but admitted that the IMF programme would represent a good deal for Pakistan as foreign reserves shrunk to $3.5 billion.

It is hoped that the increase in the cost of borrowing will stem the time of inflation, whilst the country fights off a rising trade gap.

Standard & Poor’s lowered their credit ratings for Pakistan last month due to their inability to pay their increasing overseas debt as the country needs $3.5 billion to $4.5 billion quickly to fill the financial black hole.

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