A bailout state?
THE country’s external liquidity rests shakily on the two crutches of endless IMF loans and rollovers of patron-state deposits. Both carry high costs — economic and political.
Our rulers entice patron states to bankroll a near-bankrupt state via its geopolitical, not economic, value. Rulers exploit both for personal, not public, gains. They court patrons well, but turn patronage into public progress poorly and personal profits ably. So, our growth spurts are all import-led rather than export-led. We spend dollars faster than we earn and court crises. We recover by choking growth instead of increasing it alongside exports. We have had several chances but have squandered most of them.
Musharraf squandered the biggest one this century. He ruled the longest, with the deep state and opposition under his thumb, and gained over $45bn in US aid, debt relief, FDI, and portfolio inflows after 9/11. Yet, a strong export base eluded him. Inflows fuelled consumption, imports, and property binges and bubbles; volatile portfolio funds and domestically focused FDI later led to outflows. They initially kept the rupee high, hurting exports. Their value doubled, but value-added dawdled and the export-GDP ratio fell below 1990s levels. A record current account deficit of 8.2 per cent of GDP in 2008 led to a big crisis. Bad security policies fuelled two conflicts that still hurt progress. The PPP cut the deficit. But energy woes, insecurity, ineptitude and failed reforms reduced growth.
Later, CPEC provided over $20 billion for energy and roads. This eased energy gaps, but the PML-N failed to build a durable export base. An expensive rupee led to an import surge and a current account deficit of about 6pc by 2018. The PTI had brought it down to 0.6pc by 2021 and managed the Covid phase well. But the Covid stimulus raised imports as exports lagged. The deficit rose to 4.6pc in 2022, partly due to global price shocks and political turmoil. So, the PML-N bequeathed a crisis to the PTI only to inherit one back, karma-style.
We spend dollars faster than we earn and court crises.
Import-led growth led to dollar crunches. Instead of curbing crises, high reserves made them more likely as rulers increased imports to fuel growth. Their frequency and common causes could have taught the current rulers how to avert such crises. But they are as clueless about them as they are about regular floods, even though such crises can be foreseen and forestalled. This is worse than incompetence; it shows wilful neglect. They cause and gain from such crises. The people are worse off now.
As CPEC flows shrank, we courted IMF loans and state deposits, which ballooned from 36pc of the State Bank’s reserves in 2016, when deposits were only $700 million, to nearly 600pc in early 2023. About $11bn in IMF debt, $8bn in Saudi deposits and $4bn in Chinese deposits together still exceed even our highest-ever SBP reserves of $21bn. We are the most persistent user of both crutches over time, and we now have the second-most such deposits and the third-most IMF debt globally. They are on top of an external debt of over $80bn. Unlike that debt, they don’t fund projects or jobs directly, earn no direct revenue to pay the interest and are taken only due to a dollar crunch. Even these crutches may not carry the weight of our follies, so we now eye a $10bn lifeline from our oldest but most fickle patron — the US. Bangladesh, once our lesser half, has no such deposits, and its IMF debt is only 13pc of reserves as its $48bn exports mock our $30bn levels.
Such crutches hurt. The PML-N and PTI both ignited growth spurts as reserves peaked. Despite higher SBP reserves now, this set-up hasn’t changed outcomes, given the nature of its reserve cushion. The IMF keeps us on a leash, and patron-state deposits can be recalled quickly (as in the UAE case), unlike flows with longer, fi_xed return dates. So, even patronage quality has fallen: from post-9/11 aid and debt relief to CPEC flows to harsh loans and fickle deposits. We now build reserves precariously rather than finance them prudently or earn them creatively.
After four years, this set-up boasts only stabilisation and opaque foreign forays. But as a strong export base and growth elude it, stabilisation is really stagnation. Foreign forays are sucking us into endless wars, jeopardising our own security for the sake of others. We face two risky paths: hobble on with slow growth and risk unrest, or rush recklessly into import-led growth to court a dollar crisis and unrest. With no major investments here even from the patrons it serves loyally, only the two crutches prop up a bailout state. How long will its weak life jackets keep it afloat?
The writer has a PhD in political economy from the University of California, Berkeley, and 25 years of grassroots-to-senior-level experience across 50 countries.
Published in Dawn, September 29th, 2026
