Pakistan needs investment-led growth to break IMF loan cycle

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LAHORE: Pakistan must reduce dependence on the International Monetary Fund (IMF) loans and prioritize investment growth. Structural reforms in tax, governance and business facilities are essential to attract investors and ensure sustainable economic progress.

In view of the current economic challenges, Pakistan has little choice but to seek the help of the IMF as a last resort lender. The country’s repeated engagement with the IMF is created from chronic financial and external account imbalances. Although the IMF programs provide short -term financial assistance and help prevent autonomous defaults, they come with tough conditions, with subsidies reduction, high taxes and government spending. These steps that often slow down economic growth in the short term. However, without fundamental reforms, Pakistan is caught in a cycle of borrowing and crisis management rather than achieving real economic stability.

One of the major problems is that most of Pakistan’s debts go towards support for budget rather than productive investment. An important part of the new loan is used to pay old loans, which further enhances the overall debt burden. Loan funds are spent on financing financing, import of essential items such as fuel and food, and subsidies. A large part of government operations is also allocated, while defense spending is increasing due to ongoing security challenges.

Since these loans are not invested in the productive sectors-such as infrastructure, industry, or export-based projects-they fail to make enough profit for their own payment, which deepens Pakistan’s dependence on external debt.

Sustainable economic growth depends on investment, not borrowing. Although loans can provide short -term stability, long -term prosperity requires foreign investment (FDI). Pakistan must persuade multinational companies to take advantage of their strategic location and invest as a commercial transit for Landcad neighboring countries. However, even domestic investors have stopped expansion plans due to economic uncertainty. Local investors want to provide convenience and concessions like foreign investors to restore the business environment.

The biggest obstacle to investment is Pakistan’s infrastructure deficit. The government will have to develop banking infrastructure projects in partnership with the private sector. Industrial growth will naturally follow it if the infrastructure difference is resolved.

Investing job opportunities, technology transfer, export growth and improved productivity. However, attracting investment depends on economic stability, investors’ trust and business friendly environment. Political instability has become an important obstacle, as investors generally refrain from uncertain markets. Although security conditions have improved, their concerns still affect investors’ sentiments.

Uncomfortable in policy is another major challenge. Repeated changes in tax policies, sudden restrictions, and unclear regulations prevent investment. Power shortages and weak logistics infrastructure are hindering business works, while the weak implementation of the rule of law and inadequate protection of investors’ rights are discouraged.

Despite these challenges, Pakistan still has the potential to invest. If properly managed, China Pakistan Economic Transit (CPEC) and Chinese investment can promote infrastructure and industrial. The Gulf and Middle East countries, including Saudi Arabia, the United Arab Emirates and Qatar, have expressed interest in Pakistan’s energy, mining and agriculture sectors.

In addition, Pakistan’s young population offers a great opportunity for development in technology and IT sectors. Despite the least government support and slow Internet services, software exports and startups have been increasing by more than 25 % annually in the last two years. With the right policies and stable investment climate, Pakistan can move towards an investment -driven economic model and free from its dependence on external debt.