In recent months, a striking comparison has emerged in South Asia. Two neighbouring countries — Pakistan and Bangladesh — both faced external sector pressure, dollar shortages, and IMF oversight. Yet the outcomes have been noticeably different. The contrast does not lie in geography, population, or resources; rather, it lies in governance, discipline, and policy consistency.

During the interim government setup of Professor Muhammad Yunus, the Nobel Laureate economist, from August 2024 to February 2026 (approximately 18 months), Bangladesh’s foreign exchange reserves increased from about 20 billion dollars to nearly 29 billion dollars — an increase of around 9 billion dollars. This was not a miracle, nor the result of a single individual. It was the outcome of coherent economic management and administrative discipline.

The improvement came through strict compliance with IMF programme conditions, tight control on non-essential imports, and realistic exchange-rate adjustment. At the same time, remittances were channelled into formal banking systems by discouraging informal money transfers and cracking down on hundi and hawala networks. Simply put, Bangladesh reduced dollar outflow and increased dollar inflow.

More importantly, the economic stabilization was supported by governance reforms. The interim setup emphasized accountability and merit-based administrative functioning. Appointments, transfers, and postings were aligned with competence rather than political loyalty.

Government functionaries were restrained from luxurious lifestyles funded by taxpayers. Nepotism was discouraged, and state machinery was made to function with administrative seriousness. Economic management was therefore not only financial — it was institutional.

In contrast, Pakistan’s external sector tells a troubling story. The country now carries external liabilities exceeding 138 billion dollars. The burden of debt servicing has increased sharply, with external loan interest payments reportedly increasing by 84 percent over the last three years, rising from roughly $1.91 billion to $3.59 billion annually. It is important to clarify that this figure includes payments on all external obligations, including IMF, World Bank, ADB, commercial loans, and friendly-country deposits, reflecting the total cost of debt servicing rather than the nominal interest rate alone.

Moreover, even the reported foreign exchange reserves require careful interpretation. Pakistan’s total liquid reserves currently stand at approximately 21–22 billion dollars, with the State Bank of Pakistan holding around 16 billion dollars and commercial banks about 5–6 billion dollars. However, nearly 12 billion dollars of these reserves are deposits temporarily parked by friendly countries, which Pakistan cannot freely utilise. In practical terms, Pakistan’s own usable reserves are about 9 billion dollars, providing only 1.5–2 months of import cover — far below safe levels.

Yet, despite these harsh realities, fiscal priorities remain deeply questionable. Federal and provincial governments are reportedly disbursing about Rs 45 billion to members of the national parliament — nearly Rs 225 million per legislator. Around 25 state-owned enterprises continue to accumulate losses of approximately Rs 830 billion annually, nearly Rs 2.5 billion every single day. Public resources are simultaneously used for the purchase of a luxury aircraft costing about Rs 11 billion, while a new vehicle policy allowing engine capacity up to 4700cc further reflects administrative extravagance.

This fiscal and administrative mismanagement reflects a deeper governance crisis. Pakistan lacks effective coordination between monetary and fiscal authorities, leading to ad-hoc policies that destabilize exchange rates and reduce investor confidence. Public sector enterprises continue to operate without independent audits or accountability, with politically motivated projects draining billions instead of generating revenue. Excessive reliance on short-term external borrowing, combined with weak debt management, exposes the country to escalating interest payments and recurring crises.

Decision-making remains heavily influenced by favoritism, with politically connected individuals occupying key economic positions regardless of competence. Luxury perks, extravagant expenditures, and arbitrary allocation of public funds further erode fiscal discipline. Coupled with frequent turnover of top officials — FBR chairmen, BOI heads, and finance secretaries — these structural weaknesses prevent long-term planning, undermine financial oversight, and perpetuate a cycle of instability and dependence on external loans.

The external financial situation is further aggravated by weak investment inflows. Over the last 25 years, Pakistan has attracted only around 2 billion dollars of foreign direct investment annually, and in recent years, this figure has fallen below that level. Chronic administrative instability discourages investors: in the last 15 years, 18 chairmen of the Federal Board of Revenue have been replaced, 13 chairmen of the Board of Investment have been changed in 13 years, and nearly 20 federal finance secretaries have been shifted in 15 years. This constant turnover makes policy continuity impossible. Compounding the problem, Pakistan has six organizations handling investment affairs — the Federal Board of Investment, four provincial boards of investment, and the Special Investment Facilitation Council. These bodies often operate without harmony or unified strategy, moving in different directions rather than complementing each other. Merit-based appointments remain weak, while influential individuals occupy positions for which they are not qualified, and government functionaries often maintain luxurious lifestyles at taxpayers’ expense.

Policies change with personalities, priorities change with postings, and accountability disappears with transfers. In such an environment, even generous international assistance cannot produce stability because confidence, not loans, builds reserves. Unless Pakistan enforces merit, ensures continuity of policy, restrains wasteful expenditure, and restores credibility of its institutions, every new loan will only pay the cost of the previous loan. The issue is therefore no longer financial — it is a question of state capacity, governance integrity, and moral accountability. Nations rise not when they borrow more, but when they govern better.

Dr. Alamdar Hussain Malik
Advisor, Veterinary Sciences
University of Veterinary and Animal Sciences, Swat
Former Financial Adviser, Finance Division
Government of Pakistan