Pakistan has made every effort to secure the last tranche worth $1.1 billion of a $6.5bn International Monetary Fund (IMF) loan stalled since November last year. It hopes to get the tranche by the end of June, when the loan programme is due to expire.

However, Finance Minister Ishaq Dar is confident that the country will not default even if the IMF money does not come in. He has told the nation that a plan B is in place. Mr Dar also reiterated this during a recent meeting with the US Ambassador Donald Blome without sharing the details.

Making an Eastward-looking economic policy is one thing. But being able to implement it and endure transitional pains is another. How political transitions in the near and distant future will affect an Eastward-looking economic policy is a million-dollar question.

The foreign exchange crisis is deepening day by day. On June 16, the State Bank of Pakistan’s (SBP) forex reserves fell to $3.54bn, which is insufficient to cover goods’ import bill for even a month. Banks are reluctant to open new import letters of credit (LCs), even for food imports. Obtaining foreign exchange from banks for clearing previously opened LCs has also become too difficult.

Will the country be able to get additional forex inflows of 11bn in the next two quarters without the revival of the current IMF programme before June?

The temporary halting of industrial operations for want of imported raw materials due to import restrictions also continues. People complain that arranging foreign exchange from banks to finance their children’s foreign education or pay their loved ones’ foreign medical bills has also become extremely difficult. Multinational companies in Pakistan say it has become more cumbersome to repatriate profits and dividends abroad.

The short-term part of the government’s plan B designed to remain “afloat” even without the IMF lending, relies chiefly on (1) constant rollovers of Chinese state/commercial funds placed with the SBP, (2) continued fuel oil imports from Saudia Arabia on deferred payment, (3) rollovers of funds earlier provided to Pakistan by Saudi Arabia and the UAE and (4) fuel oil imports from Russia against payment in Chinese yuan instead of US dollars.

How well this may work in the short run will become evident as early as the end of September or as late as the end of December. During each quarter of the next fiscal year starting from July 1, Pakistan must arrange $5.5bn on average for external debt servicing.

Will the country be able to get an additional forex inflow of $5.5bn in the next quarter or $11bn in the next two quarters without the revival of the current IMF programme before June? Or without securing a new, larger IMF loan afterwards? And will China, Saudi Arabia and the UAE continue to provide forex support even when it becomes clear that Pakistan has no hope of unblocking the IMF funding?

Perhaps the answer is “no”. These friendly countries have advised Pakistan not to break up its relationship with the IMF.

Shifting away from the West and closer towards the East is possible only under a forward-looking, geopolitically justifiable, geo-strategically viable, long-term, pragmatic and inclusive policy framework. Let elections be held on time, let a new government come into power, and let all political stakeholders agree on a National Economic Agenda with inputs from the “establishment”, businesses, think tanks and academia before making such a policy framework. A move made in haste is bound to end up in regrets.

That said, let’s not be deceived by the recent monthly Current Account surpluses. They lack quality. They are products of import contraction rather than expansion in exports or remittances. The fact is, despite all sorts of restrictions on imports, the current account deficit in eleven months of FY23 (July 2022-May 2023) still stands at $2.94bn.

Import restrictions cannot remain in place forever. They need to be eased — if not during this month, most likely during July-September or October-December. What will happen then?

We’ll see the return of large current account deficits of the past, consequent run on the US dollar and massive depreciation in the rupee value. Won’t we? The current government, the caretakers to be appointed for holding elections, as well as the next government, must focus on enhancing exports and remittances.

In eleven months of FY23, exports of food and textile groups that together account for 77.7 per cent of total goods’ export earnings have fallen by 5.2pc and 14.7pc year-on-year. Withdrawal of energy subsidies and other incentives makes it difficult to boost exports, particularly amidst record high domestic inflation (38pc in May) and record high-interest rates (SBP policy rate at 21pc).

The government and the private sector need to work hard to find out-of-the-box solutions for problems facing the export sector, and both will have to make sacrifices.

Cumulative inflows from three main host countries that supply 56.2pc of the total remittances showed a declining year-on-year trend in eleven months of FY23. Remittances from Saudi Arabia, UAE and the UK went down by 16.3pc, 19.2pc and 8pc, respectively, even though a record number of Pakistanis went to these countries last year in search of work.

Economic growth in the Gulf Cooperation Council region in 2022 was a massive 7.3pc, but this year it is expected to fall to just 2.5pc, according to the World Bank. That will affect the income levels of overseas Pakistanis working there and their ability to send foreign exchange back home.

The UK economic growth in 2023 is also projected at 0.4pc and that of the US at 1.6pc, according to the June 2023 Organisation for Economic Cooperation and Development Economic Outlook. This means that the decline in remittances from the UK seen so far may become sharper in future, and the 0.9pc growth in remittances from the US witnessed in eleven months of FY23 may turn negative in the coming months.

The government and the private sector need to join hands also in framing a remittances policy to ensure steady inflows in future.

Published in Dawn, The Business and Finance Weekly, June 26th, 2023