Leading Issues in the Economy of Pakistan: Agenda for Reforms Other critical steps to be taken relate to the more than halving of power sector subsidies especially by a big enhancement in tariffs. A memorandum has already been signed with the provincial governments on generation of a cash surplus of Rs 750 billion. Further, the Government has committed to limit the increase in contingent liabilities. Monetary, Exchange Rate and Financial Sector Policies: There are five crucial action/ reform areas as shown in Chart 5.3. The Government has committed to maintaining the policy of market-determined exchange rate and a flexible policy on setting of the SBP policy rate in light of the economic conditions. Further, there is agreement on phasing out of subsidized refinancing schemes of SBP, no exchange and import restrictions and effective implementation of the AML/CFT Framework. Chart 5.3: Monetary, Exchange Rate and Financial Sector Policies ACTION/ REFORM IMPACT • Continued commitment to a market­determined exchange rate • IMF has projected depreciation of 20% of the Exchange rate in 2022-23. Actual magnitude will depend on the position of FE reserves • Prudent and Proactive Monetary Policy ◊ The pace of future adjustments in the policy rate will depend on the inflation data, exchange rate developments, the strength of the external position and the fiscal-monetary policy mix • With the high rate of inflation likelihood of enhancements in the policy rate during 2022­23. Already increased to 16% by 100 basis points in November, 2022 • Phasing out of subsidized refinancing schemes• Mostly withdrawn. Will lead to a fall in private of SBP, including that on exports investment and impact negatively on exports • Monitoring health of Financial Sector ◊ Ensuring that there is no under­capitalization of banks • Two banks have been asked to inject more equity. These are relatively small banks • Commitment to effective Implementation of the AML/ CFT Framework • Review undertaken recently by a FATF team in Pakistan. Pakistan has exited from the Grey List • New Exchange and Import Restrictions ◊ Cash Margin Requirements extended to 177 items • Under the pressure of IMF, import ban has been withdrawn • The payment authorization system is in place. ◊ Import ban on import of 33 luxury and non-essential items(including Cars, mobile phones and home appliances) ◊ Import Payment Authorization by SBP before initiation by banks for importing certain goods. 64