File photo. Asif Hassan—AFP
Last week, Saudi Arabia informed the IMF that it will provide Pakistan with $2 billion in external financing, a key prior condition for reviving a stalled loan facility to avert default. Contrary to past practice, the global lender has been seeking assurances on financing from “friendly” countries and multilateral partners to fund Islamabad’s balance-of-payments, indicating its trust deficit with the government, which is prone to implementing unsustainable subsidies due to political compulsions.
Unfortunately, Pakistan is currently counted among states that have ignored their economy for political expediency, facing bankruptcy even as its neighbors—India and Bangladesh—prosper. The incumbent government, a year into its tenure, has pulled back on untargeted subsidies in a bid to reaffirm its commitment to the IMF program, but its recent announcement of a fuel subsidy for motorcycles and “small cars” has once again rang alarm bells, with the lender seeking “additional information” on its funding prior to the revival of the loan facility. Worsening the situation is a rupee that is currently at record lows against the U.S. dollar, increasing the import bill and the value of past loans. At the same time, remittances and exports have both fallen, triggering fears of a balance-of-payments crisis.
Pakistan’s prevalent political instability traces its roots to the events leading up to the 2018 general elections, with its economic trajectory showing signs of decline as early as 2016. The current polarization has infected all segments of society and institutions, dividing the country between those gravitating to isolationism and those who profess pragmatism. The ruling alliance’s economic failures—especially after tall claims of economic revival while in opposition—have further steered the voting public toward the incumbent opposition led by PTI’s Imran Khan, with little concern for how this might be perceived by the same “friendly” nations that are now essential to save us.
It is undeniable that both China and Saudi Arabia—Pakistan’s most “generous” supporters—have apparently boosted their financing following Khan’s ouster as prime minister through a vote of no-confidence. However, this support is not unconditional and unless Islamabad can work to ensure stability—political, economic, security and otherwise—there is little chance of the country emerging from its current crises regardless of who is in power.