By Yousuf Nazar
Lately, Pakistan鈥檚 economic narrative 鈥 or its explanation of recurring economic cycles 鈥 has rested on two flawed assumptions: that imports drive growth spurts, and that governments can maintain long-term exchange rate stability. Both are misleading.
Pakistan鈥檚 economic booms, such as those in the early 2000s and mid-2010s, were primarily fuelled by external factors: foreign aid, debt inflows, remittances, and low oil prices. Periods of modest stabilisation (eg, 2004鈥07, 2014鈥17) were linked to relatively stable reserve buffers. For a country with chronically weak foreign exchange reserves, sustaining a 鈥渄esired鈥 exchange rate path beyond 12鈥18 months is largely a myth.
Even today, Pakistan鈥檚 official reserves of $14.5 billion are propped up by $14 billion in short-term deposits from friendly countries. Time and again, external shocks 鈥 especially oil-price spikes 鈥 have depleted reserves, triggered sharp devaluations, and led to more foreign borrowing, exposing the structural vulnerabilities at the