World Bank refuses Pakistan’s request for Policy Loan citing Foreign Exchange situation

Foreign Minister Ishaq Dar faces a precarious situation as macroeconomic challenges have prompted the World Bank to take a stand against frequent borrowings from Pakistan.

Pakistan is currently in the worst macroeconomic scenario it could possibly be; Pakistan’s reserves have depleted by $4.2 billion in the last 11 months alone, political uncertainty has dragged the stock indices down from mammoth returns in the previous years to negative returns.

According to a story recently published in The Express Tribune (Pakistan), World Bank has refused to grant Pakistan policy loans citing the reason for refusal as liberal foreign exchange policy. According to the daily, sources at World Bank report that Due to deteriorating macroeconomic conditions of Pakistan, the lending agency cannot extend policy loans for budgetary and balance of payments support at this time.

The Finance Minister ever since taking up office of Finance Minister has been hell bent upon keeping rupee strong against the dollar despite wide criticisms from across the business community. Only recently, Ishaq Dar fired the acting Governor of State Bank as he let the Rupee depreciate by 3.1% against the dollar in the exchange market.

Pakistan’s economy despite incumbent government’s claims of turnaround continues to be stressed under the Circular Debt. Power Sector’s circular debt continues to pose a risk to Pakistan’s economic outlook.

Rupee is currently trading at 105.40 in the interbank against Dollar, which according to bank estimates is overvalued by more than 10%.