By N. C. Bipindra
Pakistan’s economic crises have unfolded with a familiar pattern for decades. It emerges from a balance-of-payments shortfall with foreign exchange reserves dwindling and its government running for emergency support from friendly capitals and multilateral lenders.
As temporary relief arrives and the immediate crisis subsides, it has never led to any meaningful reforms in the country’s economic architecture, and hence allows the same cycle to repeat recurrently.
This pattern has hardened into something more troubling over the decades, which is Pakistan’s structural dependency on external aid, but without the political will to reform the economy that requires it like breathing air.
Pakistan’s current economic distress demonstrates this dynamic with much clarity, with its financial fragility once again pushing it to seek assistance from traditional lenders, including the International Monetary Fund (IMF), China, and the Gulf states.
But what distinguishes this moment is not merely Pakistan’s need for aid but the growing reluctance of its creditors to continue providing support without a meaningful change in the country’s economic management.
Facing mounting pressure, and exacerbated by external shocks like the ongoing Middle Eastern war between the US-Israel combine, and Iran that has disrupted global energy flows and strained import-dependent economies like Pakistan, it has again turned to its external benefactors.
According to Pakistani media reports, Islamabad has in recent months submitted as many as eight separate requests to Saudi Arabia, the country that has bailed Pakistan repeatedly, seeking urgent financial assistance.
These requests include converting $5 billion currently deposited in the State Bank of Pakistan (SBP) into a long-term facility that could last up to a decade. The original deposit, which began at $3 billion in 2024 before expanding to $5 billion, was meant to stabilise Pakistan’s dangerously low foreign exchange reserves, which had gone below $8 billion after the country narrowly avoided default in 2023.
In addition to restructuring the existing deposit, Pakistan has also requested that Saudi Arabia expand its deferred oil payment facility from $1.2 billion to $5 billion.
There is a telling silence from the Saudi side, which has yet to respond positively to any of these Pakistani appeals. But it reflects a broader reassessment underway in Saudi Arabia and other creditor capitals regarding Islamabad’s long-term economic credibility.
While Pakistan’s partners for years assisted largely out of strategic calculation or diplomatic goodwill, today those same partners appear increasingly unwilling to write blank checks.
A part of this hesitation from Pakistan’s international lenders stems from concerns about how aid is used once it arrives in the country. Oftentimes, it has been reported that the financial assistance, which is intended to stabilise the economy, dissipates within a governance system marked by weak administrative oversight, political patronage networks, and persistent institutional inefficiencies.
Rather than catalysing structural reforms of Pakistan’s economy, these external funds have frequently served as temporary patches that delay bigger changes.
These concerns have been further compounded by the perception that portions of economic assistance are indirectly absorbed by Pakistan’s powerful military establishment.
Since the country’s armed forces wield enormous influence over national decision-making and maintain extensive economic interests through military-run enterprises, this external aid therefore runs out of the formal economy into the parallel military economy.
While these institutions are used to provide benefits to the military ecosystem, they do little to address the broader structural weaknesses of the civilian economy. This dynamic raises questions for Pakistan’s foreign lenders, who are left wondering how much assistance actually translates into sustainable economic improvement.
In this context, Saudi Arabia has already been signalling its answer. In 2023, its finance minister, Mohammed al-Jadaan, during a speech at the World Economic Summit at Davos, made it clear that Riyadh’s approach to foreign aid was changing as the era of giving “direct grants and deposits without strings attached” was effectively over.
While the message was directed broadly at countries dependent on Saudi support, including Jordan and Egypt, it resonated particularly strongly in Pakistan as al-Jadaan stressed that future assistance would come with expectations that recipient countries undertake genuine economic reforms.
Riyadh explicitly stated that Islamabad would need to expand its tax base, implement fiscal reforms, and address structural distortions in its economy if it hoped to receive continued financial backing. “We are taxing our people, we are also expecting others to do the same, to make their efforts. We want to help, but we also want you to do your part,” al-Jadaan argued.
It is instructive how even personal diplomacy has struggled to overcome these new conditions. Earlier, when Pakistani leaders could secure economic aid on the back of a call from its Gulf partners, now even requests from its powerful army chief, General Asim Munir, are shrugged off.
It was demonstrated in 2023 itself when Asim Munir travelled to Riyadh and reportedly made direct but unsuccessful appeals to Saudi leadership seeking credit line extensions and additional support. The Saudis, as media reports from the time highlight, insisted that Pakistan first demonstrate progress on reforms demanded by international lenders.
Moreover, China, which is Pakistan’s major economic partner and financial patron, has also adopted a cautious approach about extending its credit lines to Islamabad. Although China has invested over $65 billion in Pakistan through its China-Pakistan Economic Corridor (CPEC), Islamabad’s economic slowdown and its rising internal security challenges have made Beijing grow wary about its commitments.
Accordingly, China has also aligned its stance with that of the Saudis and other Gulf creditors of Pakistan and demanded that Islamabad take credible economic reforms before it expects any external credits.
Even the IMF, which has bailed Pakistan nearly 24 times since 1958 when it extended its first package to the country, remains cautiously engaged. After it preconditioned its latest $7 billion Extended Fund Facility program to Pakistan in 2024 to stabilise its macroeconomic environment, it has pushed Islamabad to implement some measures under the programme.
These measures include tightening fiscal and monetary policy, reducing energy subsidies, and introducing limited structural reforms. But the progress has remained uneven as Pakistan requires deeper reforms to transform its economy by breaking from political resistance, bureaucratic inertia, and competing power centres, which have repeatedly diluted reform efforts in the past.
For Pakistan’s creditors, the pattern is familiar: modest steps taken under external pressure, followed by gradual backsliding once immediate financial relief arrives. It is this pattern that the lenders are now hoping to avoid with the IMF now scrutinising Pakistan’s reform progress with unusual rigor before approving further disbursements under the current programme, even as Islamabad has sought its swift disbursal.
This hesitation over Pakistan’s credibility in undertaking genuine reforms in more than temporary terms reflects a broader recognition that Islamabad’s recurring crises emerge from a deeper structural malaise that cannot be resolved through emergency assistance alone.
For Pakistan’s leadership, which has often framed its economic troubles as temporary setbacks, it can no longer continue its decades-long pattern of seeking external lifelines to manage recurring crises that are of its own making. But the question remains whether Pakistan is prepared to undertake the reforms needed to turn around its economy and stabilise it for the longer term.
(Author is Chairman, Law and Society Alliance, a New Delhi-based think tank, and guest columnist with CIHS)
CIHS - Centre for Integrated and Holistic Studies 