KARACHI: Pakistan will follow International Monetary Fund (IMF) recommendations and amend a law by which the central bank was printing money to cover government deficits, a top official said on Monday.

“This type of money printing was a cause of inflation in the country. The government is going to amend a relevant SBP act which will enhance the autonomy of the state bank and legally prevent this type of money printing,” State Bank of Pakistan governor Dr. Reza Baqir said during an English Speaking Union event in Karachi.

The central bank’s increased autonomy and stop to its monetization of government debts are in compliance with IMF recommendations under Pakistan’s $6 billion bailout program.

“This will be another institutional reform which will help control the structural inflation,” Baqir said, adding that the practice of deficit financing has not been in place during the current fiscal year and the central bank is “confident inflation will come down.” 

The government has faced severe criticism as consumers have been under tough squeeze on their household budgets, with the inflation rate soaring to 14.56 percent in January. 

The rate slowed to 12.40 percent in February, according to the Pakistan Bureau of Statistics (FBS), and the central bank expects it to be contained between 11 percent and 12 percent during the current fiscal year.

Last week, the IMF reached a staff-level agreement with Pakistani authorities, clearing the way for the country’s third loan installment of $450 million. Pakistan has so far secured $1.44 billion under the loan program since July 2019.

In another development, the central bank governor said efforts are underway to reduce the country’s reliance on cash by moving toward digital payment systems.

“Two digital payment systems will be launched shortly. One is Asaan Mobile Account, through which cell phone users would be able to open bank accounts, and the second one is Digital Payment Gateway for reducing reliance on cash payments,” Baqir said, adding that the systems will help minimize the cost of printing money and transaction documentation, and will improve financial inclusion in the country by broadening access to banking services.