Economists are once again sounding the alarm over Pakistan’s excessive foreign debt, which has soared due to currency devaluation partly attributed to political instability. Getting out of this mess requires a focus on tough reforms and a push for exports—though even here, the country has fallen behind Bangladesh, which has transformed itself into a textiles manufacturing hub, despite not producing as much cotton as Pakistan does. How did Dhaka accomplish this? Through continuity of policies—regardless of political compulsions—and a focus on education compared to Pakistan’s stop-start approach to policymaking and an elite focus on ideological abstractions over sustained progress.
Ostensibly an agrarian state, Pakistan has failed to address the risks that entails, particularly from natural disasters that impact industrialized states far less than ones relying on farming. A recent example is of last year’s floods, which caused extensive damage to agricultural land, livestock, major roadways and other infrastructure. The disaster left Pakistan with a food shortage, forcing it to import grain, boosting inflation for an impoverished population that is already resource-starved. Contrast this with Bangladesh and India, which were able to better manage global inflationary pressures because they did not experience the climate change-induced disaster and had access to reserves that allowed them to ride out a decline in revenues.
Increasingly an import-based economy, Pakistan is also suffering from massive currency devaluation over the past year, which has significantly reduced the purchasing power of the average consumer. Stagnant salaries are barely sufficient to meet daily needs, much like the country itself, which lacks the funds to repay foreign debt, triggering warnings of default every few weeks. According to the State Bank of Pakistan, the country must repay around $80 billion in foreign debt between February 2023 and June 2026, against annual revenues of roughly $45 billion, meaning the choice is between running the country or repaying debt. The hardly credible bravado of Finance Minister Ishaq Dar does not inspire much confidence in Pakistan’s ability to overcome this crisis, which has also made it difficult for the country to avail the benefits offered by the China-Pakistan Economic Corridor. The path forward requires unanimity of purpose; but with political bickering at a peak, it is unlikely the future will come without more suffering.