Beyond the Bailout

Getting the lifeline with just another bailout package, Pakistan’s economy seems to oscillate from one loan program to another bailout package on stringent loan conditions. The question is: Will this $7 billion IMF dole help Pakistan emerge from its economic crisis? Is there a way to put Pakistan’s economy on the path of progress without seeking bailout packages from the IMF?

This article delves into a major aspect: the monumental trade deficit that arises as the economy achieves some steam and grows, leading to pressure on the foreign exchange and a consequent balance of payment crisis. Getting out of the crisis situation will require strategies that reduce the pressure on the balance of payments. Given that in the era of global and regional production networks and value chains, exports have strong linkages with imports. These linkages need to be further strengthened rather than abandoned by restricting and curtailing imports, as is the primary modus operandi during a crisis.

One often recommended fix is increasing exports to reduce the trade deficit. Policymakers stress export growth. Although an increase in exports is much needed as that will reduce the pressures on the trade deficit without curtailing imports, increasing exports strongly depends on how policymakers address the lack of productivity and competitiveness in the market. For exports to grow in a country that does not have the luxury of high levels of natural resources, it is imperative to ensure that the mix of inputs attains higher levels of efficiency such that they can produce the exports at competitive prices and according to the standards demanded by the global consumers. Increasing exports will require policies that address the structural issues in Pakistan, such as the quality of the trade and customs infrastructure that reduces the cost and time to participate in international trading activities, the ability of trade negotiators to ensure favourable trade agreements that lead to an efficient mix of inputs as well as the role of trade missions to promote Pakistani goods abroad.

According to the statistics provided by the State Bank of Pakistan, the export receipts into Pakistan in the first two months of the current fiscal year were at $4.9 billion, 7 percent more than the amount in the same period of the previous fiscal year. Import payments were reported at $9.5 billion, about 14 percent more than the same period the last fiscal year. The deficit is at $4.7 billion, about $900 million more than in the same period of the previous fiscal year. However, it is essential to note that import restrictions coupled with poor growth levels since mid-2022 have curtailed import payments. The period-to-period growth rate in import payments has been in the negative zone for each month between September 2022 and May 2024. It has recovered sharply this fiscal year as import restrictions have begun to ease and signs of economic recovery are visible.