Pakistan Commits To Uphold A Market-Driven Exchange Rate For The IMF

The government commits to refraining from providing guidance or expressing preferences to market participants regarding the exchange rate, avoiding the regulation of foreign exchange demand through administrative actions.

To enhance transparency and oversight in the open market, structural reforms are underway in the EC sector. These reforms aim to create stronger and better-managed ECs that serve the legitimate foreign exchange needs of the public. Banks are permitted to establish wholly-owned ECs to facilitate these reforms.

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In a broader context, the government pledges to strengthen transparency and efficiency in the foreign exchange market by publishing daily exchange rates in both the interbank and open markets starting from December 2023. Additionally, preparations for transitioning to a new trading platform for spot transactions connecting all banks are in progress, with the system scheduled to go live by the end of January 2024. A feasibility study is also underway to conduct foreign exchange purchases and sales via auctions, including the publication of auction results, by the end of March 2024.

While banks and exchange companies are the authorized entities for foreign exchange business in Pakistan, informal markets and channels exist. The State Bank of Pakistan (SBP) is developing a framework to monitor pricing and broader developments in informal markets. A report with findings is expected to be published by the end of March 2024.

The SBP, mandated to implement an exchange rate policy, will address any abusive or anti-competitive behavior by market participants through the enforcement of relevant regulations and applicable laws. The commitment is made to safeguard the integrity of the foreign exchange market.

Furthermore, Pakistan commits to developing a plan to strengthen internal control systems in the foreign exchange area. This includes updates to collateral policies and counterparty eligibility policies, aligned with recommendations from the 2023 Safeguards Assessment. Implementation of these updates is scheduled to begin by the end of December 2024.

In summary, the commitment to a market-determined exchange rate is a crucial aspect of Pakistan’s engagement with the IMF. The Memorandum outlines measures to ensure transparency, efficiency, and oversight in the foreign exchange market, addressing informal channels and strengthening internal control systems. The government’s commitment to refraining from interference and implementing necessary reforms demonstrates its dedication to a stable and market-driven foreign exchange environment.