September 19, 2023 (MLN): A summary of Ministry of Energy was considered regarding “Transition of London Inter Bank Offer Rate (LIBOR) to Secured over Night Financing Rate (SOFR)” in the Economic Coordination Committee (ECC) of the Cabinet's meeting held today.
The meeting was chaired by the Caretaker Federal Minister for Finance and Revenue Dr. Shamshad Akhtar.
As per a press release issued on the same day, the ECC, after discussion, directed the Ministry of Energy to prepare a detailed analysis of the financial implications of this decision and bring it in the next ECC meeting for discussion and approval.
LIBOR, the long-standing benchmark rate utilized in financial contracts for decades, has faced scrutiny in recent years due to its susceptibility to manipulation, a concern underscored by the US Federal Reserve last year.
Moreover, in a June 2023 article by Bloomberg, LIBOR was described as "outdated and discredited" over the last decade.
To address these challenges and align with global financial reforms, a decision was made in the US to kill off most versions of the benchmark at the end of 2021. The notable exception was US dollar Libor, which was published for the last time on June 30.
A transition from LIBOR to SOFR will mark a crucial step in Pakistan's efforts to modernize its financial sector and bring greater transparency and reliability to the nation's financial contracts.
