- Under Capitalized Banks to be merged or sold
- Government Debt with SBP to converted into Tradable Investment Instruments
The details of the International Monetary Fund (IMF) agreement for $ 6 billion funding revealed Pakistan is on track on maintaining a flexible market-determined exchange rate, with SBP intervention in the foreign exchange market only to prevent disorder in the market conditions and any exchange rate overshooting but not suppressing the organic Exchange Rate.
IMF Expects that it will also be supported by appropriate adjustments in monetary policy to bring up confidence and limit inflation in the economy.
IMF warned that without immediate policy actions, Country’s financial stability can be at risk, and economic growth prospects will be inadequate to fulfil the needs of an increasingly growing population
Focus on Banking Sector
The IMF agreement document also shows that State Bank of Pakistan (SBP) has instructed undercapitalised, small banks to submit their Capital Plans to give assurance on meeting SBP Capital requirements by September-2019 — The Plan may include Mergers & Acquisition or outright sale.
As per the Document, SBP has started the liquidation process of state-owned small, Undercapitalized bank.
IMF will critically evaluate any adverse impact of the Government’s economic adjustments on Bank’s non-performing loans and their Capitals. SBP is expected to ensure that the banking sector remains well capitalised.
Conversion of SBP Debt to Tradable Instruments
In negotiations with IMF, SBP and the Government have given consent to convert short-term government debt held by the SBP to the tune of Rs. 7.7 trillion into short-term and long-term tradable instruments of different maturities (up to ten years) at market Interest Rates.