Despite Massive Loans, Pakistan's Economy Still Faces Struggles

Pakistan’s current economic woes have been well-publicized. This past October it was known that the Pakistani government were likely to approach the IMF for yet another bailout, an extremely unpopular decision internally. To receive a loan from the IMF, countries often have to agree to significant fiscal reforms that can spell doom for an administration, especially in a country as volatile as Pakistan. For these reasons and others, Pakistani Prime Minister Imran Khan sought alternative solutions to his economic crisis.

These solutions involved approaching various “friendly” countries for more bilateral approach to receiving economic assistance. These countries were Saudi Arabia, the United Arab Emirates, and China. The Chinese have recently dramatically expanded their economic ties with Pakistan, with the creation and implementation of the China-Pakistan Economic Corridor, a $60 billion dollar infrastructure investment aimed at boosting economic ties between the two nations. Khan has had some success in his attempts to secure bailouts from these nations. Recently, it was announced that the UAE would deposit $3 billion into Pakistan’s central bank. This deposit follows Saudi Arabia’s loan of $6 billion, including some deferred oil payments, and Chinese assistance, the level of which has remained a secret.

It is this lack of transparency that has many foreign investors nervous about investing in the Pakistani economy and many foreign analysts nervous about the geostrategic implications of Pakistan’s deals with these nations. While Prime Minister Khan claims that no political or military concessions were made at any point, it seems unbelievable that these countries would provide such extravagant sums for nothing.  

Moving forward, Pakistan’s Finance Minister Asad Umar announced recently that Pakistan would not be approaching the IMF for a bailout, demonstrating the success of Khan’s tour for funding. Umar also reported that they would be revealing various investment schemes to attract foreign investment and reduce their reliance on attracting loans from other foreign nations. 

In the recent months, there have been slight positives in Pakistan’s economy. Trade deficit decreased, inflation barely rose, crucial funds were secured. However, various reports indicate that the crisis is just as potent as ever. Pakistan requires nearly $1.5 billion a month to cover imports and debt-servicing payments, meaning its massive loans from Saudi Arabia, UAE, and China are being depleted almost as fast as they come in. The real, structural solutions required to solve Pakistan’s crisis have not happened yet.

Pakistan struggles with a wide range of issues. First, its tax base remains much too small to support the high level of expenditure seen by the governments. Many industries have significant backing from the Pakistani military or other state apparatuses and thus are not required to innovate or add value. Second, Pakistan has failed to develop its export market, a truly missed opportunity when one observes the nearby nation of Bangladesh. Finally, corruption is such a problem in the bureaucracy that even business partners such as the Chinese feel compelled to publicly air their grievances on the subject. Chinese Ambassador Yao Jing recently addressed the Lahore Chamber of Commerce and Industry. He was asked by businessmen in attendance on why Chinese companies, after pulling out of the United States, relocate to Cambodia and India, as opposed to Pakistan. In reply, he informed them that the cost of doing business in Pakistan was among the highest in the world, due to poor trade policies, high taxes, little to no tax incentives, and an extremely high level of corruption. It remains to be seen if Khan and his government can take the necessary steps to address these deeply ingrained, structural problems, or if they will remain stuck in the perpetual loop of requiring foreign assistance every few years to prop up a struggling economy.