Dollar Procurement Policy Unsustainable: Dr. Hafeez Pasha Warns of Deepening Economic Fragility in Pakistan

In a sobering analysis of Pakistan’s economic trajectory, Dr. Hafeez Pasha, former finance minister, has criticized the State Bank of Pakistan’s (SBP) recent strategy of buying dollars from the open market to maintain rupee stability, calling it an unsustainable policy that risks exacerbating economic vulnerabilities.

Speaking on Aaj TV’s “Paisa Bolta Hai”, Dr. Pasha outlined a series of concerns ranging from weak growth forecasts, faltering exports, to inadequate foreign inflows, warning that Pakistan’s economic challenges are far from over despite superficial stability.

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💵 Currency Management at High Cost

According to Dr. Pasha, the SBP’s move to procure dollars — potentially sourced from hawala and hundi channels — to stabilize the rupee between Rs278 and Rs280 is a short-term fix, not a long-term solution.

He argued that exporters require incentives to boost foreign earnings, not just exchange rate manipulation. Yet under the IMF agreement, exporters now face a full 29% tax rate, eliminating the previous preferential 1% regime — a move that discourages export-led growth at a time when regional competitors like India and Bangladesh are offering generous support to their exporters.

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📉 Bleak Growth Outlook: Economy Stuck in Low Gear

Dr. Pasha painted a grim picture of the economy:

• Large Scale Manufacturing (LSM) sector contracting
• Major crops like cotton plunging by 28%
• GDP growth forecasted at barely 2%, missing the budgeted target of 3.5%
• Five-year GDP growth average below 3%, the worst in Pakistan’s history

He warned that unless a market-driven exchange rate is adopted and structural reforms are implemented, Pakistan’s economy will remain trapped in low-growth cycles.

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⚠️ Worsening Poverty, Unemployment, and Investment Collapse

Dr. Pasha also highlighted alarming social and economic indicators:

• 📈 Population growth at 2.5%, while per capita income is falling
• 📉 44% of Pakistan’s population now lives below the poverty line
• 🧑‍🎓 Youth unemployment has surged to 22%, with 20 million young Pakistanis idle

He stressed that stabilization has come at a huge human and economic cost, particularly for farmers and investors, with investment levels hitting a 25-year low.

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📊 Inflation and Questionable Data Practices

While the government claims inflation is easing, Dr. Pasha challenged the reliability of official statistics:

• Core inflation remains stubbornly high at 6–8%
• Food prices, particularly wheat and flour, have fallen due to IMF-driven withdrawal of support prices, potentially harming future agricultural output
• Pakistan Bureau of Statistics (PBS) claims of fuel price drops were questioned, as no substantial retail price cuts occurred

He criticized the PBS inflation data, calling it highly questionable and warning that it could mislead policymakers into complacency.

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💰 Balance of Payments: Remittances Masking Deeper Problems

While the current account has improved on the back of strong remittances, trade deficits are widening again:

• The financial account remains negative
• Debt repayments are draining reserves faster than inflows
• Net foreign exchange reserves have dropped below $10.5 billion

Dr. Pasha warned that despite temporary improvements, Pakistan’s overall balance of payments could worsen compared to last year.

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🔍 Foreign Inflows Falling Short: Fragile Outlook Ahead

Pakistan had projected $19.5 billion in foreign inflows for the current fiscal year, including $9 billion in Chinese and Saudi rollovers. However:

• Only $5 billion in fresh inflows were recorded in the first nine months
• Outflows have exceeded new inflows, further weakening external buffers

Direct and portfolio investment remains stagnant at around $1.4 billion, far below the ambitious $10–$15 billion projected under the Special Investment Facilitation Council (SIFC).

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🏦 Privatization, IMF Targets, and Ratings

Dr. Pasha also flagged concerns over key IMF targets:

• Privatization of PIA and two DISCOs still pending
• Federal Board of Revenue (FBR) expected to miss its target by over Rs1,000 billion by June
• Despite an upgrade, Pakistan’s credit score stands at only 18 out of 100, far from investment-grade

He warned that unless exports are ramped up, Pakistan will continue to operate under the shadow of external vulnerability, especially as global tariff wars further disrupt international trade.

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🧠 Final Word: Superficial Stability, Underlying Fragility

While some short-term indicators may show signs of stability, Dr. Hafeez Pasha’s analysis makes it clear: Pakistan’s economic fundamentals remain dangerously fragile.

Without real export growth, credible reforms, and market-driven policies, the country risks falling deeper into a cycle of stagnation, unemployment, and external shocks.

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