Yes, the Pakistan authorities get a sigh of relief through the pledges worth billions of dollars made during the international donors’ conference held in Geneva.

Though the government functionaries are celebrating around $10 billion of pledges, yet this is an insufficient amount to revive the economy, as Pakistan is confronted with insurmountable challenges.

Another worrisome factor is the materialisation of these pledges, as on several occasions, especially after the 2005 earthquake, despite billions of dollars of pledges from across the world, Pakistan received only a minimal amount.

Even though, the foreign exchange reserves of the State Bank of Pakistan (SBP) are at a critical low level of $3.68 billion as of January 20, 2023, Finance Minister Ishaq Dar is living in a fool’s paradise, as he is continuously claiming that the country has avoided a default on its debt obligations.

The options for the future to revive the economy are politically unpleasant but they are vital for the economic recovery of the country.

With the rising inflation and under the pressure of the International Monetary Fund (IMF), the State Bank of Pakistan (SBP) increased the key policy rate by 100 basis points in its latest Monetary Policy Committee meeting on January 23, 2023. Although a further rise in the interest rates will not be wise, especially in an election year, an increase may well indicate the pressure on the Pakistani authorities for the economic revival come what may.

An increase in the utility bills and a likely mini-budget are other factors, which will unfurl the pressure on the government to unlock the next tranche of the IMF loan programme and billions of dollars from the friendly countries such as Saudi Arabia, the UAE and China that Pakistan needs to fill its large current account deficit.

With the enormous economic challenges, there is no guarantee to keep Pakistan afloat.

Pakistan needs to move fast to change its direction and alter the course irrespective of the vested interests. These changes included enforcement of a much wider tax regime. Now, it is time that the authorities should tighten the noose against the tax evaders rather than only lip service and take action against the rich and powerful who always resisted such changes.

A significant change must be built through viciously targeting the consumption patterns across the country, keeping a ban on the luxury goods imports until the country managed to comprehensively raise its exports.

Besides, the government needs to reduce its expenditures across-the-board to significantly narrow its recurring fiscal deficit.

Pakistan has been living beyond means for long regardless of the consequences. Except a few, it is hard to find a profitable public sector company.

The country owes around $100 billion to the international donors and friendly countries, of which it has to repay $21 billion to foreign lenders during the current fiscal year, while the country has to repay the same amount or more each year, amounting to a cumulative of $70 billion in the next three years.

Unfortunately, this seems a distant dream, as Pakistan will not be able to repay such a huge debt until or unless it takes some concrete measures to resolve the issue. In the current circumstances, the country has no resources to repay the lenders debt. It will only have to borrow more from other creditors to repay their debt obligations.

It is; therefore, imminent that Pakistan will continue to go deep into debt, unless it took necessary measures such as enhancing exports and bring the current account into surplus. This will enable the country repay all its debt obligations without further borrowing from the international donors and friendly countries. Until then, we are in a tight spot.

Our main requirement after the Afghan war, in which our debt was written off, is to finance our current account deficit, meaning excess imports over exports and remittances. As we accumulated the current account deficit, our debt increased every year.

We borrow foreign exchange from one source and repay the debt of the other one, and that is why we never repaid our debts.

After General Musharraf’s government in 2007/08, Pakistan’s current account deficit reached a record level. Later after coming to power, the government of the Pakistan Peoples’ Party had to reduce this deficit by slowing down the economy, which stabilised the economy and bring down the foreign exchange borrowing requirements, to some extent.

At that time Pakistan was not in the IMF programme and the economy was also not performing well, the world was reluctant to lend money to the country, which kept the external borrowing in check. However, after five years of drift, we were in the middle of a debilitating power shortage by 2013.

After 2018, the government led by the Pakistan Tehreek-e-Insaf (PTI) made efforts to reduce the current account deficit but failed to develop a connection between the current account and fiscal deficits. During this period, Pakistan faced the largest budget deficits, while the PTI contributed around 78 per cent of all the debt incurred by the country in the last over 70 years.

The policymakers should also realise that reducing the current account deficit is not the only solution to all the economic ills Pakistan is confronted with, at present. With large debt repayments around the corner, the country either need to borrow more or earn foreign exchange through exports.

We have to bring down the fiscal deficit to below the growth rate, enhance exports, and ensure privatisation of the state-owned entities to pay off debt, improve the economic efficiency, and bring more foreign investment to improve competitiveness.

There should be consensus among all the stakeholders for the privatisation of the state-owned entities but, unfortunately, the politicians lacked it. We should also adopt import substitution measures.

Sadly enough, our civilian and military leadership remained unsuccessful in the provision of peace and security for almost over two decades.

Curtailing deficits will eventually reduce all the current expenditures below the inflation rate, such as taxing the untaxed sectors, including retail and wholesale trade, a fixed tax on agricultural land, a reduction in the Public Sector Development Programme (PSDP) provided to the provinces, etc. Pakistan needs such hard steps for growth.

The difficult part is not to bring reforms but to realise the genuine problems of the people and find a real solution to them.