The $300 million loan agreement between Pakistan and the Asian Development Bank (ADB) would prove helpful for the country in mitigating the economic fallout from the coronavirus pandemic. However, much more needs to be done on multiple fronts considering reports that identify a worrying rise in Pakistan’s external financing requirements, which may jump to $29.3bn as per the IMF. For decades now, Pakistan has struggled with managing its fiscal and current account deficits. An addiction to debt and refusal to address structural and institutional weaknesses has meant that despite billions in loans and grants, the country has been unable to create a sustainable economy. Now the problem is exacerbated due to the economic impact of the pandemic. Depleted inflows because of a significant decrease in remittances and exports means added pressure on the government to fulfil its debt obligations and spending requirements.

Unlike previous governments which championed consumption-led growth, the PTI government should keep its focus on creating opportunities for foreign direct investment, which results in creation of employment, skill development and investment-led growth in the economy. There are some good plans in CPEC in terms of establishment of special economic zones (SZEs) and the introduction of a business-friendly policy framework that makes Pakistan attractive to investors. Lessons from other countries show that a conducive economic environment can only be created through a multifaceted approach that involves legal reform which offers security and protection, enhanced institutional capacity and performance, a suitable foreign exchange regime, leveraging indigenous advantages and widescale participation from local businesses and people, among other things.

The pandemic is not over yet, and the scale of economic devastation caused by it will only become clear with time. Low fuel prices and postponement of debt by G20 nations may provide Pakistan some breathing space; now the government has the unenviable task of making the most out of this difficult situation.