he gargantuan challenges faced by the national economy are the outcomes of persistent mismanagement and bad governance. Over the years, our problem statement has remained essentially the same, i.e., high debt level, increasing trade and current account deficits, limited exchange reserves and a high cost of doing business.

No government has been able to structurally address these problems in a sustainable way. Due to short-sightedness of our policymakers, Pakistan has been experiencing only short intervals of boom, followed by busts. Every few years, the economic mess reaches a level where the government is forced to undertake macro-economic adjustments that hamper the growth and the business cycle.

Our advantageous geo-political position has never been utilised in a way that may be beneficial to the country as a whole. This has impacted the overall investor confidence. Despite being sixth most populous country, having affordable labour and a significant number of young people, we have never been a preferred option for global investors. This is largely due to the deteriorating investment climate, which is directly linked to short-term policies, political turmoil and an inefficient governance structure.

Over the years, we have been navigating through critical times with help from global lenders and bilateral partners. The ongoing crisis has aggravated due to a lack of desired response from our bilateral partners and friendly countries (sic). They have been rescuing us in the past but it seems that they have now started treating us as suspect.

Once again, the government has sought an easy way out. It has tried to avert a deepening of the crisis by asking for help from other countries. Some experts say that in practical terms the situation is tantamount to a default. The foreign exchange gap has been bridged by asking some countries to park their funds with us. If we fail to secure timely rollover of debts, the situation can worsen at an alarming speed.

The unusual delay in the long overdue completion of the ninth review of the International Monetary Fund’s Extended Fund Facility (EFF) has raised serious concerns about Pakistan’s ability to meet its external obligations. The situation is likely to persist for some more time.

The ongoing challenges will have significant implications for the economy in the years to come. Unless we make significant policy changes and attract foreign investment, there is little hope of emerging from the chronic crisis. Unfortunately, the government’s response to the challenge has been the opposite of what the situation demands.

After taking over in April 2023, the current regime took around five months to seek a resumption of the stalled EFF programme. This was mainly because of the government’s reluctance to remove the unfunded subsides on petroleum and energy.

An inordinate delay in undertaking pending reforms was witnessed as the alliance government feared losing political capital. In the end, sanity seemed to have prevailed. Unsavoury ‘prior actions’ were taken, the IMF programme resumed and the dark clouds started lifting.

The current challenges will have significant implications for the economy in the years to come. Unless we make significant policy changes and attract foreign investment, there is little hope of emerging from the chronic crisis. 

However, soon after the resumption of the IMF programme, the PDM government made the same populist mistake as the Pakistan Tehreek-i-Insaf (in February 2022). The PTI government had deviated from an agreed plan of action. Now, the PDM government too backtracked from the commitments made under the seventh and eighth review of the EFF and the finance minister made some unhelpful remarks that reflected poorly on the government’s commitment to get the EFF back on track. This had a negative impact on the lender confidence. More recently, Prime Minister Shahbaz Sharif has announced a Rs 50 per litre subsidy on petrol for those using motorcycles, rickshaws and 800cc cars and the petroleum minister a plan to increase the proposed subsidy to Rs 100 per litre.

Apart from the economic fallout, these measures have added to the difficulty of successful completion of the ongoing ninth review. The petrol and flour subsidies are virtual landmines for the already ailing economy.

Prima facie, the PDM government was banking on friendly countries and an emphatic endorsement from the IMF. Both these wishes remained unfulfilled. Resultantly, the already critical economic situation worsened further. This has brought the country to a situation where its ability to meet its external obligations stands substantially eroded.

Pakistan’s external financing needs have been growing at an alarming rate. For the ongoing year the country needs to pay $20.49 billion. Over the next four years, it will require an average of $25.23 billion each year. The projection is exclusive of the additional problems that may arise due to a current account deficit (CAD).

According to an IMF report, if we add up the estimated CAD, the average annual gross financing requirement for the next four years may rise to an average of $37.5 billion per year. The PDM government must be cognizant of the fact that the burn caused by an overheating of the economy on account of large fiscal and external deficits during 2021-2022 has already eroded our reserve buffers. We are already on a borderline where the reserves are barely enough to fund a month’s imports in the event of import restrictions, allowing only necessary items to enter the country.

The path and the hope for recovery lie in long outstanding structural and governance reforms and elimination of perils like corruption and inefficiency. This will help to improve the country’s business climate and attract foreign investment.

Our large and growing youth population can sustain high economic growth in the years to come. We should prioritise and channelise our efforts in the agriculture, technology and renewable energy sectors. While national economy faces significant challenges in the short term, with right policies and adequate investment, the country has the potential to emerge stable, strong and more resilient in the long run.

Dr Ikramul Haq, an advocate of Supreme Court and writer, is adjunct faculty at Lahore University of Management Sciences (LUMS)

Abdul Rauf Shakoori is a corporate lawyer based in the USA