ECC evaluates adoption of SOFR instead of LIBOR for foreign Loans

September 20, 2023

During a recent meeting of the Economic Coordination Committee (ECC) of the Cabinet, a summary from the Ministry of Energy was presented concerning the “Transition of London Inter Bank Offer Rate (LIBOR) to Secured Overnight Financing Rate (SOFR).” The Caretaker Federal Minister for Finance and Revenue, Dr. Shamshad Akhtar, chaired this meeting.

Following discussions, the ECC directed the Ministry of Energy to conduct a comprehensive analysis of the financial implications associated with this transition. The results of this analysis will be presented in the next ECC meeting for further discussion and approval.

LIBOR, a long-standing benchmark rate used in financial contracts for many decades, has faced increasing scrutiny due to concerns about its vulnerability to manipulation. This concern was highlighted by the US Federal Reserve last year. In a Bloomberg article from June 2023, LIBOR was referred to as “outdated and discredited” over the past decade.

To address these challenges and align with global financial reforms, the US decided to phase out most versions of the benchmark by the end of 2021. The notable exception was the US dollar LIBOR, which had its final publication on June 30.

Transitioning from LIBOR to SOFR represents a significant step in Pakistan’s efforts to modernize its financial sector. This transition aims to bring greater transparency and reliability to the nation’s financial contracts, aligning with international best practices and enhancing the integrity of Pakistan’s financial system. The ECC’s directive underscores the importance of carefully considering the financial implications of this transition to ensure its successful implementation and positive impact on Pakistan’s financial industry.