THE recent clarification by the IMF has dispelled doubts surrounding Pakistan’s loan agree-ment. During a press briefing in Washington D.C., the IMF spokesperson confirmed that Pakistan has fulfilled the necessary conditions with the help of friendly nations, paving the way for the IMF Executive Board to review the Extended Fund Facility (EFF) of $7 billion on September 25. This loan is viewed as essential to maintain economic stability in the current challenging environment.
The Governor of the State Bank of Pakistan recently informed the National Assembly’s Standing Committee on Finance that Pakistan has $26.2 billion in external payments due this fiscal year. While China, Saudi Arabia and the UAE have rolled over $12.3 billion in loans, and China has refinanced an additional $4 billion, the burden of remaining payments, coupled with the need to maintain foreign exchange reserves, highlights the significance of the IMF’s $7 billion loan. Therefore, since the staff-level agreement in July, this has been seen as a positive development for the economy.
However, some uncertainty arose when Pakistan’s case was not included in the IMF Execu-tive Board’s first three meetings of September. Fortunately, the indication of the program’s approval has restored investor confidence in Pakistan’s economy. Pakistan, with its youthful and growing population, is in dire need of increased foreign investment to create employ-ment opportunities and establish an attractive environment for global investors. However, the current level of foreign direct investment (FDI) remains insufficient.
Key obstacles to investment include Pakistan’s economic and security challenges, as well as the high cost of doing business. Developing economies tend to attract investors due to the lower operational costs and business-friendly policies implemented by governments. Unfor-tunately, Pakistan lacks these incentives, resulting in limited growth in new businesses. While there is potential for investment, the unfavourable economic conditions discourage foreign and domestic investors alike.
The approval of the IMF program could also pave the way for borrowing from other financial institutions. However, as Pakistan awaits the final approval of the $7 billion program, it is essential to reflect on the 66-year-long history of Pakistan’s relationship with the IMF. One thing solutions, but they cannot replace the need for sus-tained investment. Similarly, the terms of loan agreements typically prioritize repayment, rather than addressing the fundamental economic challenges of the borrower nation.
It is crucial to understand that the IMF loan program is an emergency arrangement, not an economic breakthrough. Real progress lies in fostering investment and industrialization, which will generate wealth and create jobs. A debt-driven economy is a parasitic one, whereas a productive economy symbolizes sustainable development. Pakistan’s economy is already burdened with excessive debt—74% of the GDP is tied to debt obligations, meaning the country is neck-deep in financial trouble.
The only way forward is to establish “islands” of industrial and productive activity amid the debt. Investment in industries is crucial for survival and growth. Shifting from borrowing to productivity can build a sustainable economic model, reduce dependence on foreign loans, and offer long-term solutions. While the IMF program eases financial pressure temporarily, comprehensive reforms and investment in productive sectors are vital for lasting economic stability, driven by industries, job creation, and investment—not recurring debt.
—The writer is contributing
columnist, based in turbat , Balochistan
