The Prime Minister’s Office issued fresh instructions to the Ministry of Finance last week to finalise currency swap agreements with the European Union, Russia, and Iran — targeting reduced dollar dependency — while simultaneously asking the ministry and the State Bank to plan a cut in the policy rate below 10%, a directive that sits in direct tension with Pakistan’s concurrent IMF commitment to raise rates if inflation accelerates. The instructions form part of a reform monitoring framework under the PM’s Delivery Unit, which tracks implementation of strategic targets across key federal ministries.
Government sources said the government wanted to sign currency swap agreements with Iran, Russia, the EU, and Association of Southeast Asian Nations (ASEAN) member countries on the lines of the Pakistan-China currency swap agreement. Agreements with Russia and Iran could also open avenues for trade.
Currency swap agreements with Russia, Iran, the EU, and ASEAN member countries are listed as work in progress under Pakistan’s strategic roadmap. The PM’s Office asked concerned ministries last week to provide an update on reforms that have been implemented, are in progress, or are falling behind deadlines.
Pakistan already operates a bilateral currency swap arrangement with China. Under the Pak-China swap deal, Islamabad has availed a $4.5 billion trade facility but has largely used the money to settle debt obligations. The facility is part of the $16.4 billion foreign exchange reserves — a portion of which is being used to settle $4.8 billion in foreign debt this month.
Pakistan on Tuesday repaid its $1.3 billion Eurobond debt, the first major settlement as part of the $4.8 billion repayments due this month. Finance Minister Muhammad Aurangzeb said Pakistan remained committed to honouring its external obligations in a timely manner, adding that the Eurobond repayment was being executed in an orderly manner, reflecting the country’s continued resolve to uphold its financial commitments and credibility in international financial markets.
The $4.8 billion repayment burden through April — while Pakistan simultaneously absorbs a fuel crisis and manages a Rs 129 billion fuel subsidy outlay — represents the most acute simultaneous pressure on Pakistan’s foreign exchange reserves since the 2023 crisis.
The prime minister has also tasked the finance ministry with making plans, in consultation with the central bank, to bring the policy rate below 10%.
This directive conflicts directly with Pakistan’s written assurance to the IMF — confirmed in the third EFF review concluded 28 March 2026 — that it stands ready to raise interest rates if inflation exceeds the 7.5% threshold. March 2026 headline inflation already hit 7.3%, and analysts warn the April fuel price shock could push it toward 9–10% in Q2. The SBP policy rate currently stands at 10.5%, held at the 9 March 2026 MPC meeting.
According to another direction issued by the PM’s Office, the finance ministry should ensure monetary market stabilisation for meaningful appreciation of the rupee against foreign currencies.
Pakistan is keen to use the Asian Clearing Union mechanism for trade payment settlements. The finance ministry has been tasked with launching an awareness campaign for importers, exporters, and investors regarding regulatory frameworks introduced to facilitate trade with China in RMB and for settlements of trade payments through the Asian Clearing Union.
The Asian Clearing Union — a multilateral payment settlement mechanism headquartered in Tehran — counts Pakistan, India, Bangladesh, Sri Lanka, Myanmar, Nepal, Bhutan, Maldives, and Iran as members. Using it for trade settlements reduces the need to convert every transaction through USD, directly lowering Pakistan’s dollar demand from trade.
The government is working to strengthen regulations to control manipulation of the exchange rate, hoarding, and smuggling of foreign exchange. The PM’s Office has asked the finance ministry and the central bank to check hoarding of currency, as the market was anticipating devaluation due to the $4.8 billion debt repayments this month.
The IMF has separately asked Pakistan to end targets given to commercial banks to surrender dollars to the central bank and lift restrictions on outbound movement of foreign currency. Pakistan has assured the IMF it will relax restrictions on foreign exchange movement and will also use the currency as a shock absorber to discourage imports. The IMF has added a condition to ensure these restrictions are lifted by March 2027, with the central bank required to develop a roadmap for the gradual removal of foreign exchange restrictions.
The government wants to reduce the debt-to-GDP ratio to 61.5% by 2028 — a target that may not be achieved given current high levels. External debt is targeted to be reduced to 17.9% of GDP by 2028, and interest payments to 4.9% of GDP by 2028. The PM’s Office wants the current account deficit kept below $3 billion and gradually converted to a surplus. The finance ministry must ensure sustained GDP growth of 4–5% in the first two years, increasing to 6–8% by 2029, with GDP expanding to $500 billion.
These targets — set under the Medium Term Debt Management Strategy 2026-28 launched by the Ministry of Finance — are characterised by sources as ambitious, with analysts flagging that sustaining the required primary fiscal surpluses while managing a fuel crisis, external debt repayments, and mounting subsidies simultaneously presents significant execution risk.
For Pakistani importers and exporters, currency swap agreements with the EU, Russia, and Iran — if finalised — offer a route to settle trade in non-dollar currencies, reducing exposure to dollar scarcity and the PKR/USD exchange rate. For example, Pakistan’s energy importers currently pay for Gulf crude in dollars at Rs 279 per dollar; a rupee-ruble or rupee-rial arrangement for oil trade with Russia or Iran would directly cut this forex drain. For businesses already operating under the RMB trade framework with China, the Finance Ministry’s awareness campaign on Asian Clearing Union settlements signals further official encouragement to move away from dollar-denominated invoicing on bilateral trade.