If the world decides to stop providing Pakistan with the drip-feed of bilateral and multilateral credit that is maintaining its failing economy on life support, it might tip Pakistan over the edge.
Pakistan’s reliance on financial assistance from its few foreign allies and international lenders is growing by the day as a result of the country’s multiple economic issues, including high inflation, significant fiscal deficits, low industrial and agricultural productivity, a fragile balance-of-payments position, a weak exchange rate, etc.
We have been a very dependable client of the IMF, the World Bank, and others for the last few decades to pay our bills since we do not collect enough taxes to support our budget and the nation’s potential to make enough money to pay for imports from other countries. Therefore, it comes as no surprise that among South Asian nations, Islamabad was the top borrower of cheaper financing from the International Development Association. In its annual report for 2023, the World Bank notes that Pakistan received $2.3 billion in financing from the IDA during the previous fiscal year.
Pakistan’s debt hangover is getting worse quickly as the government’s reliance on internal and external borrowing to cover all of its expenses after paying increasing debt payments grows quickly. According to State Bank figures, the overall public debt increased from 73.9 percent of GDP at the end of FY22 to 74.3 percent at the end of FY23.
The government’s ability to support inflation-stricken citizens and expand the economy is being undermined by the growing debt stock, which is also forcing it to borrow more money to repay its creditors. Just as the recent $3 billion IMF loan delayed national default, the realisation of the promised multibillion-dollar investment bailout may offer some solace, but it will not alter the course of events.
Basic economic reforms must be implemented before any amount of bailout money can be used. The complex economic situation does not have a single, easy fix.
Because of political considerations, successive governments have put off important reforms for far too long and pumped up the economy with borrowed money.
The economy will find itself in a considerably deeper hole once the brief periods of low growth are over, with the average person forced to endure the increased cost and suffering of new adjustments while the upper classes continue to enjoy their advantages. The government is delaying economic changes while it works to control serious domestic political and religious disputes. For the nation, this will turn out to be devastating.
