THE UAE loan of $3bn — including the rollover of the existing debt of $2bn and fresh support of $1bn — and the Saudi oil facility of $1bn will help Pakistan further bridge the external financing gap of nearly $34bn for the present financial year. Just like the multilateral and bilateral commitments of nearly $10bn received for flood recovery in Geneva earlier this week, the newest development is indeed a positive one for the country. It will buy the government some time to ward off the risk of a looming sovereign default in view of the rapidly depleting foreign exchange reserves. But avoiding the deepening economic imbroglio isn’t enough for the government to declare victory. A stitch here and there may keep us afloat but won’t solve the issues facing the economy. The expected boost to sentiments will be temporary unless the government sorts out its differences with the IMF for the revival of its bailout programme. As has been emphasised time and again, the support of the Fund is crucial to attract multilateral and bilateral assistance on a longer-term basis. To this end, Pakistan must stick to the macroeconomic reforms agenda to swiftly conclude the stalled ninth IMF programme review — a move that would give confidence to the country’s international partners and investors. The time bought through the promised Gulf assistance must be used to bridge the gap with the lender of last resort to reassure international creditors.

However, it would be folly to expect the country’s return to the IMF as a panacea for its economic troubles. External loans and assistance can never solve the economic issues of a country. Multilateral and bilateral support can do only so much, ie, provide some space to fix the issues responsible for frequent boom-and-bust cycles. That we have lurched from one IMF programme to another after every few years shows that we have never used the space created by foreign loans and assistance to make the necessary decisions and execute the policies required to put Pakistan’s economy on the right path for sustainable growth. If this country is to stabilise and grow, we will have to take a few tough decisions to change the fundamentals of the economy. Management of the exchange rate, massive energy subsidies, tax holidays and import restrictions to create a false sense of stability will never get us anywhere.

Published in Dawn, January 14th, 2023