Pakistan’s external finances rely on IMF loans and foreign deposits: Report

New Delhi: Pakistan’s external financial position remains heavily dependent on IMF lending and deposits from friendly countries, a combination that helped avert repeated balance-of-payments crises but has failed to deliver long-term economic stability, according to a report.

According to a report by Dawn, successive governments have relied on foreign support tied to Pakistan’s geopolitical importance while failing to build a sustainable export-led growth model.

As a result, periods of economic expansion have largely been driven by imports and consumption, leading to recurring shortages of foreign exchange reserves, it added.

A former military ruler benefited from substantial inflows following the September 11 attacks, including aid, debt relief, foreign investment and portfolio flows.

However, the report said that the opportunity to strengthen Pakistan’s export base was largely missed as inflows fueled consumption, imports and real estate activity.

The country later faced a record current account deficit in 2008, triggering a major economic crisis.

Subsequent governments also struggled to break the pattern.

While the China-Pakistan Economic Corridor (CPEC) helped address energy shortages and improve infrastructure, it did not produce the export growth needed to reduce external vulnerabilities. Rising imports once again pushed the current account deficit higher by 2018.

Although later administrations reduced the deficit temporarily, imports surged again following pandemic-era stimulus measures, while global commodity price shocks and political uncertainty added to economic pressures.

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

However, these funds do not directly generate economic activity or export earnings and remain vulnerable to changing political and financial conditions.

Pakistan has moved from receiving development-oriented assistance and investment flows to depending on costly loans and short-term deposits, the report said warning that without meaningful export growth, economic stabilisation efforts risk turning into prolonged stagnation, leaving the country caught between slow growth and the threat of another foreign exchange crisis.

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