Pakistan is currently navigating through severe economic challenges, characterized by an external financing gap that has compelled the government to seek loans from various international sources.
Initially, Prime Minister Shehbaz Sharif announced in July 2024 that Pakistan would not seek further loans from the IMF, but by August, Finance Minister Mohammad Aurangzeb approached Middle Eastern banks for a $4 billion loan, indicating a shift in strategy.
Pakistan has also requested a $1.2 billion loan from Saudi Arabia and is negotiating with UAE banks for an additional $800 million, aiming to secure a $7 billion IMF bailout.
The government is also renegotiating terms with Chinese creditors, particularly concerning energy sector debts where interest rates are high at 13-17%. Despite these efforts, inflation, measured by the Sensitive Price Index, has slightly eased to 16.69% year-on-year, hinting at a potential decrease in the key policy rate by the State Bank of Pakistan.
Critics argue that the government’s heavy borrowing is crowding out private sector investment, potentially burdening future generations with high interest rates and debt.
