Pakistan Raises Interest Rates Ahead of IMF Bailout: Bloomberg

By Khalid Qayum and Farhan Sharif

Nov. 12 (Bloomberg) -- Pakistan's central bank increased its benchmark interest rate by 2 percentage points, the most in more than a decade, as the government seeks a loan from the International Monetary Fund to avoid defaulting on its debt.

The State Bank of Pakistan raised the discount rate at which it lends to commercial banks to 15 percent, Governor Shamshad Akhtar said today in Karachi. The increase was part of conditions for an IMF loan, said Ahsan Iqbal, a spokesman for the Pakistan Muslim League-Nawaz party and former deputy chairman of the Finance Ministry's planning commission.
``It was the toughest decision of my life,'' Akhtar told reporters. ``The IMF program will be good for Pakistan as we need to be disciplined.''

Pakistan has been forced to seek funds from the IMF after its foreign reserves shrunk to $3.5 billion as of Nov. 1 from $14.2 billion a year ago, raising concern the country will not be able to pay the $3 billion in debt-servicing costs due in the next 12 months. Higher borrowing costs may also tame inflation, which accelerated to near a three-decade high in October.

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