In nine months of this fiscal year (between July 2022 and March 2023), the PML-N led government borrowed more than Rs2 trillion from banks to meet budgetary requirements, according to the State Bank of Pakistan. In the same period of the last fiscal year (between July 2021 and March 2022), the then PTI-led federal government borrowed Rs969 billion.

The government’s need for borrowing has been on the rise as tax revenues continue to fall short in meeting expenses, the largest head of them being domestic and external debt servicing. And non-tax revenue, too, isn’t growing because most of the state-owned enterprises keep reporting huge losses — thanks to their unaddressed structural issues of overstaffing, inefficiency and financial irregularities.

The government is borrowing heavily from banks not only to service domestic debt but also to ensure the security and defence of the country and maintain law and order. Besides, bank borrowings are being used to pay salaries and pensions to the state employees, provide funds to parliamentarians for “development”, and feed a large army of government functionaries, including ministers, state ministers and special assistants to the prime minister.

External debt servicing and meeting shortfalls in foreign exchange requirements of the country are entirely different. For that, the government needs foreign exchange. And that does not come easily.

The diaspora must be given a proactive participating role in the country’s politics and provided with a flawless, digital system for making investments with the least interaction with bureaucracy

Forex support from friendly countries is trickling in, but that is too little — if not too late. Foreign investment has dried up — both for economic reasons as well as because of the extremely uncertain political environment in the country. Exports and remittances have been on the decline in nine months of this fiscal year, compared with the same period of the last fiscal year.

And imports that remained contained during these nine months (July 2022-March 2023) have now started growing faster after easing of the import restrictions from this month.

That is why forex reserves continue to decline. The State Bank of Pakistan’s reserves fell to $4.038bn as of April 7 this year from $11.425bn in March last year. The continuous fall in the reserves is taking a toll on exchange rates, and the rupee is constantly depreciating.

On April 14, 2023, the rupee closed at 284.40 per US dollar in the interbank market after regaining some of its lost value in the past three days. (On 11 April, the rupee had hit an all-time low of 288.43 against the greenback).

Exactly a year ago, on April 14, 2022, the rupee stood at 181.69 per US dollar. This 56.5 per cent rupee depreciation within a year has not only added to the cost of external debt servicing and elevated the cost of foreign-funded projects in rupee terms but has made imports too costly and fueled general inflationary pressures.

Pakistan badly needs the International Monetary Fund’s (IMF) money. It is expecting $1.1bn from the Fund. But whereas the country’s patience is running out — and rightly so as it has implemented some very harsh IMF conditions — the Fund is taking too much time.

In the best-case scenario, this $1.1bn will come before end-April. And with that will come forex funds from other international financial institutions, including the World Bank and Asian Development Bank —and, hopefully, more forex support from friendly countries. All combined, this will provide enough temporary relief to Pakistan in managing its balance of payments.

But regardless of the outcome of the ongoing political/parliamentary/judicial/constitutional crisis in the country, Pakistan as a state will find itself in a very difficult situation at the beginning of the new fiscal year in July. This year’s estimated economic growth of 0.4pc-0.6pc and discontinuation of almost all vital subsidies mean that the export sector will not have no or very little domestic push and cushion for growth.

Policymakers will, then, need to find innovative ways to save the export sector from an imminent collapse. On the other hand, overseas Pakistanis may also feel demotivated to send exceptionally large sums of foreign exchange back home if their homeland remains in the grips of political uncertainty.

But if sanity prevails somehow and at least some political stability can be restored before the beginning of the new fiscal year, overseas Pakistanis can minimise Pakistan’s external sector problems.

In 2022, 832,339 Pakistanis left the country to work abroad — mostly in the Gulf Cooperation Council region. In 2023 we can expect a natural growth in remittances’ income just because of this record-high “export” of our workforce — the third highest in Pakistan’s history. (In 2015, 946,571 Pakistanis had emigrated in search of foreign jobs, followed by 839,353 in 2016).

The increase in remittances to $2.835bn in March 2023 against $2.533bn in March 2022 reflects not only the effect of pre-Eid inflows but also the natural growth that was expected after the record high export of workforce last year.

Whether this uptrend seen in March can bring the decline in overall remittances’ inflows witnessed during July-March 2022-23 is too early to predict. (In July-March 2022-23, overall remittances fell to $20.527bn from $23.019bn in July-March 2021-22 for a host of reasons, including ever-growing political uncertainty in the country).

To reverse the decline in remittances inflows, overseas Pakistanis must be given a proactive participating role in Pakistan’s politics, and they must be provided with a flawless, digital system for making investments in various sectors of Pakistan’s economy with the least interaction with bureaucracy.

Pakistan’s export sector needs lots of foreign exchange to modernise its operations. Our policymakers must develop an institutional framework wherein exporters and overseas Pakistanis can work hand in hand, one taking care of the needs of the other. But that framework should be developed with real inputs from exporters and overseas Pakistanis and should be guided sufficiently by technology — and not solely by bureaucratic regulations.

Published in Dawn, The Business and Finance Weekly, April 17th, 2023