The benefits of the staff level agreement on a new Extended Structural Adjustment Facility of $7 billion from the IMF will become visible once rollovers become available from Saudi Arabia and China of $9 billion, which is almost half of the $20.8 billion in the debt servicing payments that Pakistan owes this year. Without those rollovers, Pakistan has no real hope of making those payments. Pakistan hopes to obtain $1 billion from the World Bank for the Dasu hydropower project, Rs 500 million from the Islamic Development Bank for oil and commodities import, and is seeking money for the Diamer-Bhasha dam project. These prospects are all opening up because of the IMF deal, which gives lenders the impression that Pakistan’s economy is being so managed that it will be able to meet its obligations.
Though Pakistan has been at it for many years now, it does not make it a safe strategy, or a particularly long-lasting one, to use project loans and aid to meet debt servicing requirements. Also while rollovers are good, they are, early a kicking of the can down the road, a postponement of the day when the loans have to be repaid. It almost appears as if there is a disconnect between borrower and lender, in that the borrower does not intend to repay. Unfortunately for Pakistan, its decision-makers were accustomed by the USA to lend money with the understanding that it would be embezzled, so that it could obtain influence over the embezzlers. That debt is now being serviced, with the result that Pakistan is now in a debt trap, where it is having to borrow or service its loans. The USA extracted a price in another way, by getting the country it was lending to toe its line. It would be too much to expect Saudi Arabia and China not to have Pakistan follow their wishes in its foreign policy. And both expect to be repaid.
The only way out of this difficulty would be for Pakistan to earn enough foreign exchange by exporting more. The Prime Minister has set a target of doubling exports in three years. If achieved, this would do the trick, but of the aid money coming in, not enough is going on projects that would earn foreign exchange, even indirectly.
