or many years now the national economy has not been stable. This has created doubts about the very viability of the state. The multifaceted challenges, intensified in recent years, have impeded both economic growth and fiscal stabilisation.

The current challenges encompass a range of fiscal risks, primarily originating from external payment obligations. Shifts in global economic dynamics, fluctuations in commodity prices and global geopolitical tensions have also contributed to our complex situation. A comprehensive approach is needed to mitigate risks and foster sustainable economic growth.

Pakistan’s integration into the global economy has a pivotal role in shaping its domestic environment. We rely heavily on the imports to meet the domestic needs from energy to basic commodities. Therefore, any shift such as recession, alterations in global political alliances, or changes in trade patterns among major economies, affect our exports, imports and overall economic trajectory.

Fluctuation in the prices of essential commodities like oil, gas and agricultural products, as well as factors like supply disruptions, shifts in demand and geopolitical events have a profound impact. In this scenario, we must remain vigilant and proactive in managing our economic affairs.

Both externally and at home, our economy has faced persistent challenges. Foreign exchange inflows and revenues have consistently lagged behind outflows forcing the governments to borrow heavily. This has led to a significant escalation in external and domestic debts.

Consequently, sustainability of the economic framework is in serious jeopardy. Addressing this imbalance requires a strategic shift towards enhancing inflows and revenues rather than relying solely on borrowing.

According to the data released by the State Bank of Pakistan, domestic liabilities of the government stood at Rs 43.16 trillion in February 2024, marking a 20 percent increase from the previous year’s Rs 35.75 trillion. By December 2023, external debt had reached $131.159 billion, with external public debt accounting for $87.7 billion.

As of December 2023, the average time to maturity for domestic public debt stood at 3 years and for external public debt at 6.3 years.

It is important to note that in December 2020 the ATM target was set at 4.1 years for domestic debt and 7 years for external debt. This indicates a trend towards retiring long-term debt while acquiring shorter-repayment loans.

Balancing the maturity profile of debt is vital to mitigate refinancing risks and ensure sustained fiscal health. Therefore, implementing prudent debt management practices is crucial to navigate the intricacies of debt dynamics and safeguard long-term economic stability of the nation.

The government should expand the scope and reach of targeted transfer programmes like Benazir Income Support. It is crucial to strike a balance between short-term stabilisation measures and long-term structural reforms to ensure a resilient and prosperous future for all citizens. 

Since 2013, Pakistan has been in violation of the Fiscal Responsibility and Debt Limitation Act. During the first half of FY2024, fiscal deficit surged by 40 percent, reaching Rs 2.407 trillion, equivalent to 2.3 percent of the GDP, compared to Rs 1.68 trillion, or 2.0 percent of the GDP, in the previous year. This widening gap between income and expenditure necessitated increased borrowing, pushing the nation deeper into the debt trap.

Currently Pakistan is striving for yet another extended fund facility programme from the International Monetary Fund. For this a high-powered team is in Washington.

While engagement with the IMF is inevitable, there is an urgent need to address the debt predicament. This requires comprehensive strategies aimed at bolstering revenues, curbing expenditure and implementing prudent debt management practices.

According to the Summary of Consolidated Federal and Provincial Fiscal Operations for July-December 2023, the markup payment nearly matched the total federal tax revenue collection. Pakistan’s gross external financing requirements for the ongoing year are estimated at $25 billion.

Pakistan has so far managed its external debt obligations through financial management, timely external inflows, curtailment of current account deficit and rollovers. However, the burgeoning debt burden has crippled the government, leaving no room for a further slippage.

The incumbent government must adopt a multi-dimensional approach, implementing robust policy measures to restore fiscal discipline and ensure debt sustainability. This entails restraining both current and developmental spending while enhancing tax revenues to align with the financial needs.

Such actions can create fiscal space for public welfare initiatives, social protection for vulnerable segments and enhancement of debt sustainability. Additionally, monetary policy interventions have a crucial role in anchoring inflation and addressing external imbalances.

The SBP has already raised the policy rate by 12.25 percent since April 2022. In the long run, however, sustaining such high rates could hinder growth, posing new challenges for both the public and private sectors.

To mitigate the financial impact of macro-economic adjustments, the government should expand the scope and reach of targeted money transfer programmes like Benazir Income Support. It is crucial to strike a balance between short-term stabilisation measures and long-term structural reforms to ensure a resilient and prosperous future for all citizens.

Reducing public debt through prudent fiscal management is essential to enhance economic stability and attract investment. Improving tax collection mechanisms and reducing unemployment rates is pivotal for sustaining revenue streams and fostering inclusive growth. Additionally, prioritising policies that stimulate GDP growth is paramount for advancing economic prosperity and ensuring long-term sustainability. By implementing a comprehensive strategy that addresses these key areas, policymakers can pave the way for a more resilient and prosperous economic future for Pakistan.

Dr Ikramul Haq, writer and an advocate of the Supreme Court, is adjunct faculty at Lahore University of Management Sciences.

Abdul Rauf Shakoori is a corporate lawyer based in the USA.