Growing the economy without debt rollovers

Sustainable growth requires strategic vision, not temporary fixes

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KARACHI:

For policymakers, analysts, investors, and business leaders, maintaining a clear strategic vision for Pakistan's economy is paramount. Short-term measures, windfalls, and temporary relief may provide stability, but they will not transform the country into a globally competitive economy. Despite early signs of recovery under the current leadership, sustainable growth remains a distant goal, though progress is underway.

Managing an economy of 250 million people amid internal and external challenges is no easy feat. Even small-scale businesses and projects take four to six years to mature. Therefore, it is commendable that despite default risks, fiscal constraints, and external pressures, efforts continue to stabilise and restructure the economy. A key aspect of this process has been the reliance on dollar debt rollovers.

Every few months, we witness news of debt rollovers from bilateral partners such as China, Saudi Arabia, and the United Arab Emirates. While the current leadership strives to build economic self-sufficiency, these rollovers remain necessary stopgap measures.

The reality is sobering — Pakistan, a nuclear-armed nation with abundant talent and resources, should not have to sustain its economy on periodic injections of a few billion dollars. Had economic growth been consistent since the 2008 financial crisis, Pakistan could have fostered a class of dollar billionaires, enhanced exports, attracted foreign investments abroad, and strengthened its geopolitical independence.

The fundamental problem lies in decades of policy missteps. We have irresponsibly borrowed dollars and squandered them on consumption-driven imports, mismanaged foreign investments, illicit capital outflows, and overvalued exchange rate policies. Episodes of ultra-loose monetary policy — 2016-17 and 2020-21 — further exacerbated economic volatility. Instead of sharp currency depreciations (0-30%) and extreme interest rate fluctuations (7-22%), a more prudent approach would have been a controlled currency depreciation of 4-5% annually and maintaining interest rates within an 11-14% range.

The reliance on debt rollovers will not disappear within the short-term scope of the current International Monetary Fund (IMF) programme. While the programme mandates increasing the tax-to-GDP ratio to 13%, implementing pension and power sector reforms, privatising state-owned enterprises (SOEs) like Pakistan International Airlines (PIA) and Discos (power distribution companies), and ensuring fiscal stability through devolution, these measures are merely foundational steps. True economic independence demands urgent structural reforms.

To break free from the cycle of debt, Pakistan must rapidly shed liabilities through the privatisation of Discos and other State-Owned Entities (SOEs) while fostering an environment conducive to business growth. Export expansion, foreign direct investment (FDI) attraction, and strategic focus on agriculture, minerals, IT, and global value chains must drive the economy. Instead of seeking rollovers on official visits abroad, Pakistani leaders should position the country as a credible investment destination where partners proactively seek opportunities. This requires a disciplined approach.

Addressing trade imbalances and avoiding an overvalued currency is crucial. Expediting foreign investment inflows with policy consistency and reduced taxation will encourage growth. Maintaining a balanced current account for multiple years, prioritising industries with high export multipliers, and resisting the temptation of unsustainable growth spurts ahead of elections will ensure long-term stability.

While positive indicators — soaring stock markets, declining inflation, controlled circular debt, increasing tax revenues, and record remittances — offer short-term relief, they are not a long-term solution. With a growing population, per capita import demand will rise, threatening stability unless governance gaps are closed. As emphasised by policymakers, the cost of economic mismanagement is far too high.

The path forward is clear. Pakistan must focus on growing exports, foreign exchange reserves, and FDI organically while reducing the debt-to-GDP ratio every quarter. Implementing reforms with a five-year commitment to economic prudence and discipline will be key. Follow this path, and the economic dividends — including electoral support — will follow.

THE WRITER IS AN INDEPENDENT ECONOMIC ANALYST