THE Asian Development Bank will give Pakistan $1.2bn, including $400m for budgetary support, for financing various federal and provincial projects. The World Bank has also approved $350m to fund a scheme to strengthen fiscal management and promote competitiveness for sustained and inclusive growth. This is good news for an economy in dire straits, with foreign reserves running low. The disbursement of these funds, along with the release of $700m by the IMF under the $3bn Stand-by Arrangement, is expected to somewhat boost reserves over the next several months after a near dry first half of the current fiscal year. Official inflows during the first five months of this fiscal year have stood at $6.4bn — equal to a quarter of annual financing needs.

The promised cash from multilateral lenders is crucial to keeping the country’s economy afloat, and maintaining price and currency stability in the near to medium term, considering the high external funding requirements amid low reserves. In a recent report on Pakistan, the global credit rating agency Fitch had pointed out that “projected external funding needs will continue to exceed reserves for at least the next few years, while broader measures of net reserves are deeply negative”. With its external funding requirements set to remain high and its reserves low, the agency added, Pakistan will remain dependent on the IMF as well as bilateral and multilateral support. The materialising of this support will depend largely on Pakistan’s ability to tackle long-standing structural distortions in its economy after the next elections. The current crisis offers the country an opportunity to fix its economy. The World Bank has warned that the failure to use it would risk plunging the country back into stop-and-go economic cycles. Multilateral budget financing has remained suspended for long due to Pakistan’s strained relations with the Fund. Policy missteps or political volatility should not be allowed to jeopardise this renewed opportunity again.

Published in Dawn, December 22nd, 2023