Borrowing is a Poor Substitute for Economic Reform in Pakistan


Pakistan’s economy needs critical reforms, but the government is reluctant to undertake them. Instead, it is banking upon on geopolitics (American support to ensure Pakistan does not collapse) and IMF assistance to muddle through.


Recently Pakistan raised $1 billion from international capital markets via a bond issue. According to economic journalist Khurram Hussain the reason was “global markets are flush with liquidity at this point, and despite Pakistan’s story taking a hit among global lenders due to the limbo in the IMF program, it is still not a bad enough story to keep them away altogether, given there is more money than options around the world these days.”


However, the only way things will really get better is with resumption of the IMF program, “which has been in some sort of limbo since the incomplete review after the budget. The government has till August or perhaps early September to demonstrate the muscle behind its confidence, but if there should be another review left inconclusive at that time its external financing plan for the budget will be hanging in the balance.”


Hussain points towards the need “to keep an eye on is remittances. They’re anticipating $31.3bn in remittances for next year, up by almost 10pc from the current year. This means if we have two months of even mild increases in remittances it could start building pressure on the reserves. That’s how fast these things can turn when they are not supported by underlying reforms.”


Hussain notes that “one sure-fire way to shore up the situation is to come to an understanding with the Americans about Afghanistan. But it is likely that as part of that understanding, Pakistan will have to take on the responsibility to underwrite peace in that country, or at least to keep the government in Kabul from falling. That burden might be heavier than the benefits of seeing a few months, perhaps a few years, of a growth boom through.”


Author: Adam Ahmad