EDITORIAL: A statement issued by the State Bank of Pakistan (SBP) quoted Governor Jameel Ahmed as stating that Pakistan’s macroeconomic conditions and external buffers have improved. It was delivered on the sidelines of the International Monetary Fund/World Bank annual meeting in Bangkok, and organized by J P Morgan, Citibank, Deutsche Bank, Barclays, Standard and Chartered and Mitsubishi financial group.
The Governor highlighted the gains made post-2023 in growth, strengthening foreign exchange reserves driven largely by SBP purchases that were facilitated by a balanced current account as well as well as regulatory reforms introduced by the apex bank that included exchange companies and official remittance inflows.
His reference year, 2023, epitomized appalling performance of macroeconomic indicators due to implementation of severely flawed policies that included interference in the foreign exchange market to keep the official dollar-rupee parity at an unsustainable level, which subsequently led to multiple exchange rates with around 4 billion-dollar reduction in official remittance inflows accounting for foreign exchange reserves of less than 3 billion dollars early 2023. This led to a suspension of the then ongoing IMF loan and the decision to extend a nine-month long Stand-By Arrangement necessitated the abandonment of market intervention and regulatory reforms. Today, the foreign exchange reserves are a healthy 21.4 billion dollars as of late September; however, given the massive rise in the international prices of oil due as well as limitations to trade with Gulf countries due to the ongoing conflict in West Asia as well as the Russia-Ukraine war this amount is barely enough for three months of imports, the minimum required by international donor agencies.
Exports are rising at a far less rate than imports and the boom-bust cycle that has characterized this country’s trade balance defined as regulating imports through administrative measures that reduce the current account deficit but lowers growth as output dependent on raw material and semi-finished products flounders till controls are lifted that once again increases the current account deficit. It must be a source of serious concern to the authorities that the first quarter current account deficit (July-September 2026) rose to 874 million dollars compared to 755 million dollars in the same period of last year. Needless to add, the rise in the current account deficit has compelled many a country to seek loans from multilaterals and Pakistan is no exception.
Reports attributed to independent economists also suggest that the rupee-dollar parity has been remarkably though bafflingly resilient even during times when nearly all other currencies in the basket to which the rupee is pegged are eroding in value. And, cite IMF’s persistent exhortation in all documents and press releases relating to Pakistan as evidence of their concern, including the one dated 7 October 2026: “exchange rate flexibility should continue to serve as an important shock absorber, while further reserve accumulation, gradual liberalization of the foreign exchange regime, and deeper domestic financial markets will strengthen resilience and support private sector development.”
Foreign Direct Investment remains insignificant, at 1672.3 million dollars last fiscal year but with portfolio investment at negative 1,186 million dollars (inexplicably, the domestic stock market index rose by 3.51 percent) giving a net inflow of only 486.1 million dollars last year. This no doubt is also reflected by the fact that Pakistan’s rating remains below investment grade.
The Governor added that public debt to Gross Domestic Product ratio has been on a downward trajectory – again true but this has been brought about by converting short-term to long-term debt, with a higher interest rate though with the maturity period pushed back; and included is heavier reliance on incurring debt equity (the government recently issued a dual-phase 3 billion dollar Eurobond), which would be payable in dollars with a yield of 7.5 percent for five and a half years (1.75 billion dollars) and 7.9 percent for ten years (1.25 billion dollars), and in the event that the rupee loses its value this debt would imply further narrowing of the fiscal space. Not included in public debt is the 498 billion rupees due to Chinese IPPs and the over 2 trillion-rupee circular energy debt.
There is many a proverbial slip between the cup and the lip; one would hope for more informed, in-house out-of-the-box policies rather than simply accepting IMF conditions, whose ineffectiveness can be gleaned from the fact that Pakistan is currently on its twenty-fifth programme.
Copyright Business Recorder, 2026
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