Pakistan is facing a critical situation as it struggles to secure a $1.2 billion loan tranche from the International Monetary Fund (IMF) while also needing to repay $3.7 billion in external debt by June 30th. Despite Finance Minister Ishaq Dar’s claims that the government has fulfilled all prior actions required to secure the loan, the IMF insists on written pledges to bridge the external financing gap. The IMF has made it clear that it wants Pakistan to do more to secure the loan tranche, and the situation warrants an out-of-the-box approach, such as mobilizing indigenous resources and tapping into the investment potential of overseas Pakistanis.
Pakistan has already secured $3 billion worth of written guarantees from friendly Arab countries, and China is expected to roll over a $2.4 billion loan that is maturing next month. However, Pakistan would still need to repay $1.3 billion, and without the contested IMF tranche, the country risks defaulting on its financial obligations.
Even if Pakistan secures the IMF loan tranche under review and the mentioned support from China, it will only help the country see off the ongoing fiscal year without defaulting on external payments. The next fiscal year will begin with a huge requirement of dollars, which means that Pakistan would require another IMF program and continued financial support from friendly countries to tackle a worsening balance of payments crisis.
The current calculus of borrowing and repaying is not sustainable for long, and Pakistan needs to explore alternative approaches to address its financial challenges. One option is to mobilize indigenous resources by developing domestic industries and promoting exports. Additionally, Pakistan can tap into the investment potential of overseas Pakistanis, who have significant financial resources and could provide the necessary funding to support the country’s economic growth.
Pakistan is facing a critical situation as it struggles to secure the IMF loan tranche while also needing to repay significant external debt. The situation calls for an out-of-the-box approach that focuses on mobilizing indigenous resources and tapping into the investment potential of overseas Pakistanis. If Pakistan fails to address its financial challenges, it risks defaulting on its financial obligations and exacerbating its already dire economic situation.