PM Office seeks progress on currency swap deals with EU, Russia and Iran

ISLAMABAD: The Prime Minister’s Office has directed officials to move ahead with efforts to finalise currency swap arrangements with the European Union, Russia and Iran as part of a broader plan aimed at reducing reliance on the US dollar and linking trade more closely with regional economies.

The currency swap initiative has been included in the Ministry of Finance’s strategic reform agenda, and the Prime Minister’s Office has asked the ministry to provide an update on progress regarding the proposed agreements.

The reform framework for major federal ministries, including the finance ministry, has been completed by the Prime Minister’s Office, while the PM’s Delivery Unit has been assigned to monitor implementation.

Government sources said the administration is seeking swap arrangements with Iran, Russia, the EU and member states of the Association of Southeast Asian Nations on the pattern of the existing Pakistan-China currency swap agreement. The sources said agreements with Russia and Iran could also create opportunities for trade.

Under the Pakistan-China swap arrangement, Islamabad has used a trade facility worth $4.5 billion, though most of it has been utilised for debt servicing. The facility forms part of the country’s $16.4 billion foreign exchange reserves, some of which are to be used for repayment of $4.8 billion in external debt this month until fresh borrowing is secured.

Pakistan on Tuesday repaid its $1.3 billion Eurobond, marking the first major payment within the $4.8 billion due this month. After the payment, Finance Minister Muhammad Aurangzeb said Pakistan remained committed to honouring its external obligations in a timely manner. He said the Eurobond repayment was being carried out in an orderly way, reflecting the country’s resolve to maintain its financial commitments and credibility in international markets.

Last week, the Prime Minister’s Office also asked relevant ministries to report on reforms that have been completed, are under way, or are behind schedule. Sources said the proposed currency swap arrangements with Russia, Iran, the EU and ASEAN countries are listed as ongoing work under Pakistan’s strategic roadmap.

The prime minister has also instructed the finance ministry to prepare plans, in consultation with the State Bank of Pakistan, to bring the policy rate below 10%. The development comes as Pakistan has made a fresh commitment to the International Monetary Fund to raise interest rates to contain inflation.

Under another directive from the Prime Minister’s Office, the finance ministry has been told to ensure monetary market stabilisation to support meaningful appreciation of the rupee against foreign currencies. Pakistani authorities have also assured the IMF that restrictions linked to currency controls will be removed.

The IMF wants an end to targets set for commercial banks to surrender dollars to the central bank and the lifting of restrictions on the outward movement of foreign currency, provided sufficient resources are available. At the same time, the government is working to tighten regulations to curb exchange rate manipulation, hoarding and the smuggling of foreign currency.

Sources said the Prime Minister’s Office has asked the finance ministry and the central bank to check currency hoarding, as the market was expecting devaluation because of the $4.8 billion debt repayments due this month.

Pakistan is also looking to use the Asian Clearing Union mechanism for settlement of trade payments. The finance ministry has been tasked with starting an awareness campaign for importers, exporters and investors on the regulatory framework introduced to facilitate trade with China in RMB and to enable trade settlements through the Asian Clearing Union.

The Prime Minister’s Office has also directed the finance ministry to reduce the burden of high public debt, which is consuming a significant share of the federal budget. However, the ministry counted the launch of the Medium Term Debt Management Strategy 2026-28 among its achievements, although the targets set under it may be difficult to meet.

Under those targets, the government aims to bring the debt-to-GDP ratio down to 61.5% by 2028. It also seeks to reduce external debt to 17.9% of GDP by 2028 and cut interest payments to 4.9% of GDP by the same year.

The Prime Minister’s Office also wants the current account deficit kept below $3 billion and gradually turned into a surplus. In addition, the finance ministry has been assigned targets to maintain GDP growth in the range of 4% to 5% during the first two years, raise it gradually to 6-8% by 2029, and expand the size of the economy to $500 billion.