Pakistan’s balance-of-payments crisis has been temporarily stalled by the United Arab Emirates and China announcing assistance of $1.3 billion to give the ailing economy the shot in the arm it needs to meet conditions to unlock the next trance of IMF funding.
According to Finance Minister Ishaq Dar, the UAE has promised $1billion to prop up Pakistan’s forex reserves which currently stand at $4.04 billion, barely enough for one month of controlled imports. China too offered to release $300 million to Pakistan — the last tranche of a $1.3bn rollover loan.
However, most economists agree that stagnating growth, skyrocketing inflation, and sustained political conflict are leading the country towards the danger of sovereign default.
As an editorial in Dawn noted, “our ruling elites have borrowed heavily from just about everywhere to sustain their luxurious lifestyle for decades, without ever thinking that the world could one day stop financing or subsidising their extravagant ways. It is not surprising that no one wants to fund us unless we make a strong commitment to implementing reforms and fixing our structural issues.”
The IMF may provide the next trance of the bailout loan to Pakistan to avert a default, however, “the Fund isn’t satisfied with Pakistan’s commitment to reform or its ability to arrange the required funds to meet external financing needs, our bilateral partners are also hesitant to step up.”
To make debt repayments of $75 billion over the next three years, Pakistan must rapidly boost its earnings from exports, FDI and remittance inflows from overseas Pakistanis. “That is not going to happen overnight or without implementing key structural reforms to stabilize the economy. So Islamabad is left with only one option: take fresh loans and seek rollovers of existing foreign debt to stay afloat and avoid a formal default. The alternative — debt restructuring — doesn’t sound pleasant in the current environment. In either case, we will have to first deal with the elephant in the room: political instability.”