USD10bn question

Pakistan’s request for a USD 10 billion US Exchange Stabilisation Facility has generated expectations, concerns and questions. The real question is not whether Washington can provide Pakistan with another financial cushion, but whether that cushion can finally help Pakistan graduate from its recurring dependence on bilateral rollovers, capital-market borrowing and, ultimately, the IMF. This calls for understanding the mechanics of the proposal.

Finance Minister Muhammad Aurangzeb clarified that: “The proposed US facility is not itself a conventional USD 10 billion loan, but a mechanism intended to strengthen confidence in Pakistan’s currency and enable the country to raise longer-term funds from international capital markets, thereby moving towards market-based financing with less reliance on bilateral support. The government does not want to increase bilateral external debt and will try to replace it with market-based debt with longer maturity.”

Pakistan owes short-term USD 12.3 billion debt to three bilateral creditors: Saudi Arabia, China and Kuwait. Saudi Arabia has recently rolled over USD 5 billion till December 2028 but has given another USD 3 billion for three months. China is rolling over USD 4 billion annually. These rollovers have a political cost and a compromise on country’s fiscal sovereignty. The recent example is when the UAE withdrew its rollover facility at a short notice and Pakistan scrambled to request Saudi Arabia for its replacement.

The clarification put forth by the Finance Minister appears convincing and promising for the fiscal landscape of the country.

This leads us towards understanding the mechanics of the proposal.

Let’s begin by understanding what exactly is the US Exchange Stabilisation Fund?

The US Treasury’s Exchange Stabilization Fund (ESF) is a specialised US government financial instrument established under US federal law, the Gold Reserve Act of 1934. It holds dollars, foreign currencies and IMF Special Drawing Rights and can undertake foreign-exchange operations as well as provide financing to foreign governments. Its operations require Treasury Secretary’s authorisation.

Importantly, the ESF is not a development bank or a conventional foreign-aid window. Its central purpose is monetary and exchange-rate stability. Historically, its foreign-government financing has generally been temporary, often serving as a bridge until IMF or other multilateral financing became available.

Treasury policy also requires an assured source of repayment and has frequently linked ESF support to IMF programmes.

This is where the Pakistani proposal becomes interesting. If Washington provides a five-year backstop or stabilisation commitment, as reported, it could potentially improve perceptions of Pakistan’s reserve and exchange-rate risk, and thereby reduce the risk premium demanded by international investors.

The benefit would therefore be greater than the cash actually drawn: a credible US guarantee could help Pakistan access Eurobonds, Sukuk and other market instruments at longer maturities.

There is, however, a substantial catch. Pakistan is proposing to replace relatively short-term bilateral financing with market-based borrowing. That may reduce political dependence on friendly governments, but it does not reduce Pakistan’s external indebtedness. It merely changes the creditor, maturity structure and potentially the cost of borrowing.

Indeed, market borrowing could become considerably more expensive than concessional or relationship-based bilateral deposits.

Pakistan’s recent upgrade to ‘B’ is encouraging, but it remains below investment grade. The country therefore cannot assume that a US backstop will automatically produce cheap money. The market will still examine fiscal deficits, debt sustainability, foreign-exchange reserves, taxation, energy-sector losses and political stability.

It needs to be understood that Saudi Arabia and China have provided Pakistan with repeated deposits, rollovers and other forms of short-term support precisely because Pakistan has struggled to generate sufficient foreign-exchange buffers of its own.

The IMF itself has recognised that continued bilateral and multilateral financing remains critical to Pakistan’s programme.

A US backstop could, over time, diversify Pakistan’s sources of external financing and reduce the humiliating spectacle of repeatedly seeking rollovers.

That would be a significant gain in economic sovereignty. But replacing dependable bilateral deposits with expensive market debt without first strengthening the current account and fiscal position would merely substitute one vulnerability for another.

The real test, therefore, is the dependence on IMF programme over the next years.

Pakistan’s current IMF programme is a 37-month, approximately USD 7 billion EFF approved in September 2024. By May 2026, disbursements under the EFF and the accompanying Resilience and Sustainability Facility had reached about USD 4.8 billion.

The IMF programme continues to require fiscal consolidation, revenue mobilisation, energy-sector reform, SOE restructuring and reserve rebuilding.

An American backstop could make an eventual IMF exit more feasible, but it cannot make the underlying need for reform disappear. IMF dependence is ultimately a symptom of Pakistan’s structural imbalance: insufficient domestic revenue, chronic fiscal deficits, weak exports, energy-sector inefficiencies and recurring foreign-exchange shortages.

The opportunity is therefore substantial—but only if Pakistan uses the US facility as a bridge from dependence to self-reliance, not another bridge from one lender to another.

The objective should be simple: use the credibility of the US backstop to lengthen debt maturities, rebuild reserves, deepen capital markets and attract investment; simultaneously undertake the fiscal and structural reforms that make repeated external rescues unnecessary.

Otherwise, the USD 10 billion will merely give Pakistan more time—not a way out.

Copyright Business Recorder, 2026