Editorial
Data from the Economic Affairs Division reveals that Pakistan’s foreign inflows for the first four months of this year were $2.723 billion, including the $1 billion release from the ongoing IMF program. This figure is $1.1 billion less than the external loans disbursed during the same period last year, signaling a concerning decline in financial support. Despite the budget for 2024-25 projecting external resources of 5,685,801 million rupees, which is higher than last year’s revised estimates, the gap between projected and actual external inflows continues to widen.
One key issue is the expectation that the country’s participation in the IMF program would prompt assistance from other external sources, including China, Saudi Arabia, and the UAE, all of whom had withheld pledges until Pakistan secured the IMF’s agreement. However, despite these countries’ previous promises, their pledged funds, including $5 billion in time deposits from China and $4 billion from Saudi Arabia, have yet to be disbursed. This delay raises concerns that political or non-economic factors may be influencing the disbursement process.
These time deposits are crucial for bolstering Pakistan’s foreign exchange reserves and stabilizing the rupee-dollar exchange rate, which has contributed to the recent decline in inflation. The absence of these funds presents a significant challenge for the country’s economic stability. Additionally, the data reveals that despite a budgeted commercial borrowing of $3.779 billion, there has been no disbursement from this source so far. This reflects the high risk of default associated with Pakistan’s credit rating, which keeps the cost of borrowing from commercial lenders prohibitively high.
Further exacerbating the situation is the government’s continued reliance on external borrowing, which primarily serves to meet interest payments on existing debt. Despite the fiscal fragility, current expenditure is expected to rise by 21 percent, leading to questions about the government’s efforts to control spending and reduce borrowing. Though the reduction in the policy rate could save significant debt servicing costs, it remains unclear whether these savings will meaningfully reduce the overall budget deficit or simply offset the increasing expenditure. For meaningful fiscal reform, the government must provide transparency on its current expenditure and address how its spending policies are contributing to the country’s economic challenges.
