Borrowing time

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Pakistan has become accustomed to celebrating each successful loan rollover as though it were an economic achievement. It is not. It is merely a reprieve. That the government borrowed over $27 billion in foreign financing during the last fiscal year should prompt a broader debate about whether the borrowed funds are creating the economic capacity needed to reduce future dependence on debt.

Yet the most troubling aspect is the destination. Nearly nine out of every ten dollars were consumed by budget financing, debt repayments and shoring up foreign exchange reserves. Barely $3.4 billion found its way into development projects capable of generating future growth and export earnings. There are, of course, circumstances that cannot be ignored. Pakistan inherited a fragile external position after years of economic instability and tightening financial conditions. Avoiding sovereign default was, and remains, an overriding priority. The government's strategy of securing IMF support while obtaining rollovers from longstanding partners such as China and Saudi Arabia has undoubtedly bought valuable time and helped restore a measure of macroeconomic stability. These gains deserve recognition. But buying time is only worthwhile if that time is used wisely. The figures suggest that Pakistan is still borrowing largely to service yesterday's obligations rather than investing in tomorrow's capacity. Commercial borrowing at relatively high interest rates and deposits carrying annual returns of 4-6% provide breathing space but also increase future repayment burdens. As maturities shorten and financing requirements remain elevated, every approaching deadline becomes another test of creditor confidence.

Fiscal consolidation must distinguish between wasteful expenditure and essential investment. The country cannot borrow its way to prosperity. Neither can it abruptly withdraw fiscal support without risking economic disruption. Loan rollovers may keep the economy afloat, but only reforms can finally steer it towards safer waters.