Pakistan’s IMF Reliance, Weak Exports Keep Economy Vulnerable To Foreign Exchange Crises

Pakistan’s external position remains closely tied to IMF programmes and financial support from friendly countries amid persistent export challenges.

The pattern continued under successive governments, despite efforts to improve the country’s infrastructure and energy capacity.

Source : PTI

Show Quick Read

Key points generated by AI, verified by newsroom

• Pakistan repeatedly faces financial stress due to weak export base.
• Past aid and CPEC missed opportunities to boost exports.
• Current foreign exchange reserves rely heavily on IMF and allies.

Pakistan has repeatedly managed periods of external financial stress with the help of IMF programmes and deposits from friendly countries, but the underlying dependence on foreign funding remains, according to a report by Dawn.

The report said Pakistan’s economic expansion has repeatedly been followed by pressure on its foreign exchange position because growth has not been accompanied by a sufficiently strong export base. Imports and consumption have instead played a major role during periods of expansion.

From Foreign Aid To Costly External Financing

Pakistan’s reliance on external support has also changed over the years, the report said.

Following the September 11 attacks, a former military ruler benefited from substantial inflows that included aid, debt relief, foreign investment and portfolio flows. However, the opportunity to channel these inflows into building a stronger export sector was largely missed.

According to Dawn, the additional money instead supported consumption, imports and real estate activity. The result was a sharp deterioration in the external position, with Pakistan recording a record current account deficit in 2008 and subsequently facing a major economic crisis.

CPEC Did Not Deliver The Export Growth Needed

The pattern continued under successive governments, despite efforts to improve the country’s infrastructure and energy capacity.

The China-Pakistan Economic Corridor helped address energy shortages and supported infrastructure development. However, the report said the investment did not translate into the level of export growth required to reduce Pakistan’s external vulnerabilities.

By 2018, rising imports had once again pushed the current account deficit higher.

Later governments succeeded in bringing the deficit down for periods, but the improvement proved temporary. Imports rose again after pandemic-era stimulus measures, while higher global commodity prices and political uncertainty added to the pressure on the economy, according to the report.

Reserves Increasingly Rely On IMF, China And Saudi Arabia

Pakistan’s current reserve position is increasingly supported by IMF programmes as well as deposits from countries such as Saudi Arabia and China, the report said.

These sources have helped provide financial support when the country has faced external pressures. However, they do not themselves generate export earnings or directly create economic activity, according to Dawn.

The report also pointed to the vulnerability of such funding to changes in political and financial conditions.

Export-Led Growth Remains The Missing Link

The report said Pakistan has gradually moved away from development-oriented assistance and investment inflows towards greater dependence on loans and short-term deposits.

That shift has helped the country manage repeated external financing pressures, but it has not resolved the structural issue of generating sufficient foreign exchange through exports.

According to Dawn, without meaningful export growth, efforts to stabilise the economy risk becoming prolonged measures that support stability without delivering stronger growth.

The report warned that this could leave Pakistan facing a recurring tension between slow economic growth and the risk of another foreign exchange crisis.

Input By : IANS