Growth anxiety is building within government and establishment circles as the country enters its fourth year of stabilisation, yet growth remains elusive. Without delving into why the traditional growth model is no longer working, it is evident that Pakistan needs external buffers to attract capital.
Without these buffers, the sword will continue to hang, preventing the central bank from allowing a current account deficit beyond one percent, and the dream of exiting the IMF programme will remain unfulfilled.
The government is failing to generate both investment and debt flows from friendly countries. For last two years, the incumbent regime has been making claims of plans to attract US$ 100 billion in investment from friendly nations. Hope continues to rise as geopolitical winds shift in Pakistan’s favour, but so far, there is nothing concrete in the kitty.
According to IMF documents, Pakistan’s average annual gross external financing requirement is US$ 23 billion over the next five years. Of this, US$ 7.5 billion per year is expected to be raised by the private sector. For context, estimated private-sector external disbursements in FY25 are only US$ 795 million, barely one-tenth of what will be required annually in the coming years.
The onus is therefore shifting to the private sector to conceive long-term projects and secure financing from external creditors, and rightly so. Private-sector players generally enjoy greater credibility than the government, where governance issues remain paramount. The private sector can also partner with foreign firms to attract investment and financing into productive sectors.
The government is targeting, at least on paper, exports of US$ 63 billion within four years. Notably, the same Planning Commission team had set an export target of US$ 125 billion by 2025 back in 2015. That target proved to be wishful thinking, and today there still appears to be no concrete plan to double exports within four years. Similarly, the ambition to attract US$ 200 billion in annual investment by 2035, with 75 percent coming from the private sector, lacks a credible roadmap.
Before losing interest in unrealistic numbers, the immediate objective should be to raise private-sector external credit from US$ 700 million to US$ 7 billion annually. That is a long journey, given current conditions. The private sector cannot achieve this without an improved sovereign credit rating, which in turn requires reducing gross external financing needs of over US$ 20 billion annually. As long as balance-of-payments risks loom and the threat of external payment restrictions remains high, progress will be limited.
The government must leverage improved geopolitical positioning to convert short-term rollovers of debt and deposits from friendly countries and their banks into long-term bonds. The quantum of debt is not the main issue; its short-term profile is. Annual rollovers are routine, and repayments are unlikely in the near future. What is needed is a restructuring of maturities to improve the short- to medium-term outlook.
Such steps would help improve Pakistan’s credit rating and enable genuine partnerships between the domestic private sector and private entities from friendly countries. This is where geoeconomics can truly come into play. As argued by Dr Moeed Yusuf, multiple countries should hold economic stakes in large projects, particularly in mining and other strategic sectors. Aligning Pakistan’s interests with those of China, the Middle East, and the United States would help ensure project success, political stability, and economic dividends.
This, however, is easier said than done. Debt maturity extension is a necessary but insufficient condition. Much more is required, including resolving energy-sector inefficiencies and fiscal imbalances. Overall governance must improve, and long-term political stability must be ensured, something that cannot be achieved by disenfranchising the will of the majority.
For now, the focus should be on taking baby steps in the right direction: converting short-term debt from friendly countries into long-term instruments, addressing energy-sector woes through bold reforms and deregulation, broadening the tax net, and pursuing inclusive growth policies.
Otherwise, the country risks remaining trapped in a low-growth equilibrium, where the current IMF programme ends only for the next one to begin immediately thereafter.
Copyright Business Recorder, 2025
Ali Khizar is the Director of Research at Business Recorder. His Twitter handle is @AliKhizar