akistan is likely to continue to face pressure on its foreign exchange reserves despite having received the first tranche of $1.2 billion, out of the 9-month $3 billion stand-by arrangement (SBA) after its approval by the Executive Board of the International Monetary Fund on July 12. It is mainly due to the fact that more than $28 billion is payable during the current fiscal year (2023-2024).

Being an import-reliant nation, Pakistan’s foreign exchange reserves also bear the burden of managing the current account deficit, which has always been a challenge. However, any short-term attempts to control it through import restrictions will directly affect inflation and discount rates, unemployment levels, economic activities and GDP growth.

Although acclaimed as an agrarian country, Pakistan might face a shortage of wheat — the main staple food — and other edibles to meet the domestic demand. We have been forced in the past to import wheat, onions, tomatoes, dairy products and edible oils from the neighbouring countries. This leads to significant foreign exchange outflows. By efficiently employing modern agricultural techniques, we have the potential to meet our requirements and conserve foreign exchange.

Another aspect of the national economy is dependence on imported machinery and raw materials for exports. Successive governments have encouraged manufacturers with attractive incentives, such as tax exemptions, concessional rates for electricity/ gas and subsidies, to boost export volumes and enable Pakistan to claim its fair share of the global market. However, despite the incentives provided across various sectors, the target for accumulating foreign exchange through exports in the FY 2023-2024 stands at $30 billion, lower than remittances from abroad.

A significant factor contributing to our financial challenges is a disregard by powerful institutions for the trichotomy of powers envisaged in the constitution. Consequently, the nation has encountered not only political instability but also financial hardship. The most significant setback has been the loss of trust of foreign investors, who have remained hesitant to invest in Pakistan. This lack of confidence in Pakistan is evident in the recent IMF Report (No 2033/260 published on July 18), which indicates that the foreign direct investment remains a mere two percent of the GDP, one of the lowest in the region.

Pakistan’s prosperity is heavily dependent on foreign direct investment. In the not-so-distant past, we cited the China-Pakistan Economic Corridor (CPEC) as a prime example of a landmark project that would strengthen and enhance the relationship between the two countries. Indeed, in 2015, bilateral ties reached new heights when China presented a comprehensive economic uplift plan to Pakistan. The framework was meant to promote regional connectivity and unlock Pakistan’s economic potential.

It was asserted that the CPEC presented an investment potential of more than $60 billion across various sectors, including but not limited to infrastructure, energy, industrial cooperation and trade enhancement. The primary emphasis of the project lay in developing crucial infrastructure. This involved the construction of roads, railways, ports and energy projects, all aimed at enhancing transportation networks and fostering trade and connectivity not only within Pakistan but also with neighbouring countries.

The nation encountered not only political instability but also financial hardship. The most significant setback was the loss of trust of foreign investors, who have remained hesitant to invest in Pakistan. This lack of confidence in Pakistan is evident in the recent IMF report. 

The CPEC has been instrumental in bolstering Pakistan’s energy capacity through the development of a diverse range of energy projects, encompassing thermal, hydroelectricity, solar and wind power. These initiatives have played a crucial role in mitigating energy shortages and fostering economic growth in the country. Moreover, the CPEC has served as a milestone in promoting industrial cooperation between China and Pakistan by establishing special economic zones along the corridor. The goal was to facilitate relocation of Chinese industries and encourage joint ventures that could catalyse industrialisation in Pakistan.

Additionally, it was expected that the CPEC would play a pivotal role in enhancing trade between Pakistan and its regional partners. In an increasingly interconnected and globalised world, this economic corridor would serve as an important milestone for Pakistan’s journey towards economic progress symbolising the collective aspiration for a more prosperous future, characterised by peace, sustainable development and robust economic growth.

Unfortunately, the anticipated benefits and dividends of the project could not be realised due to disruptions and political turmoil. From the very outset, even before assuming power, Pakistan Tehreek-i-Insaf created hurdles for the CPEC. Protests in the capital led to a delay of Chinese president’s visit to Pakistan, causing similar delays in the project’s initial kick-off.

The fundamental concept behind the CPEC was to uplift Pakistan’s economy in a way that the dividends generated from energy, infrastructure, port development and other projects would become sufficient to cover the payments related to the CPEC. However, political instability and undue interference in functions of the Executive as well as interference in election process in 2018 caused unnecessary delays resulting in a collapse of the original plan.

The failure to promptly capitalise on CPEC’s benefits led to approaching maturity dates for payments related to the Chinese loan. The project came to a halt and was unable to generate the planned revenue at the initial stages. As a result, Pakistan’s debt situation deteriorated and became precarious. In December 2022, nearly 24 percent of its public external debt was owed to China. Although as Pakistan’s all-weather friend China has been extending roll-overs and redepositing certain amounts to boost Pakistan’s forex reserves, maturity profiles of loans and sums becoming due, do not align with Pakistan’s external reserves position.

We seem to have learnt no lessons despite enduring significant hardships such as the highest debt burden accumulated in five years, historic inflation, deliberate violations of an agreement with the IMF for political gain, deteriorating law and order, a poor ranking of the Judiciary by World Justice Project and being ranked high in corruption. The poor are struggling to fulfill their basic needs while the major stakeholders are preoccupied with safeguarding their interests.

It is imperative for us to realise that our progress hinges on adhering to the constitution. Any deviation from it in the upcoming election will severely impact the country’s future trajectory. This is a critical juncture. It calls for responsible action and a commitment to upholding the principles outlined in the constitution.

Dr Ikramul Haq, an advocate of the 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