Pakistan’s Quest for US Funding: A Test of Reform Resolve

Pakistan’s diplomatic efforts have earned it significant goodwill in Washington, but its latest bid to secure $10 billion from the United States has sparked skepticism among economists. The request, made during Finance Minister Muhammad Aurangzeb’s visit to Washington this week, aims to bolster Pakistan’s economy and diversify funding beyond traditional lenders like the International Monetary Fund (IMF), China, and Saudi Arabia.

The proposal for a US exchange stabilization fund has raised eyebrows, particularly given Pakistan’s role in brokering a ceasefire between the US and Iran. While this diplomatic feat may have earned Islamabad some credit with Washington, its economic fundamentals remain unchanged from before the war began. Amid tensions with the United Arab Emirates, Pakistan repaid Abu Dhabi $3.5 billion in April, depleting its reserves by a fifth.

The proposed facility would provide a vital cash cushion for Pakistan’s reserves, but many analysts question whether it will address the deeper structural issues plaguing the country’s economy. Adeel Malik, an Oxford University associate professor, has described the proposed reserve facility as “geopolitical rent,” coming on the heels of Pakistan’s mediation in the US-Israeli war on Iran and amid a new series of Middle Eastern escalations.

Pakistan’s IMF-enforced reforms have shown some impact, with S&P Global Ratings upgrading Pakistan to ‘B’ from ‘B-’ earlier this week. However, these reforms come at a steep cost: unpopular tax rises and spending curbs that may further erode the government’s already precarious popularity ahead of elections due by 2029.

The proposed US fund would likely be structured like a maximum draw rather than an upfront dollar transfer, with Treasury’s Exchange Stabilization Fund supporting it. However, even if the funds are disbursed, there is no guarantee that Pakistan will pursue deeper reforms. Vaqqar Ahmed, a Pakistani economist, has cautioned that fresh liquidity can buy time but not growth. “Pakistan will keep returning to the IMF” unless it addresses its structural issues, he said.

The request has also sparked debate about Pakistan’s debt sustainability framework. With a roughly $138 billion debt pile, Martin Muehleisen, a fellow at the Atlantic Council and former IMF strategy chief, questioned the scale of the request against this backdrop. “For a country the size of Pakistan, you would talk about a few hundred million dollars; $10 billion is just a different order of magnitude,” he said.

China, which has been Islamabad’s sole backer for years, may welcome US assistance in stabilizing its neighbor but will likely be cautious about ceding ground to Washington. Beijing wants Pakistan stabilized but doesn’t want to remain its sole supporter – and would welcome Washington sharing the load.

Ultimately, the proposed US funding is not an exit strategy from Pakistan’s IMF program. Economists argue that any funds disbursed by Washington will come with strings attached: a conditionality that ensures Islamabad remains committed to its reform agenda. Even then, there is no guarantee that these reforms will be implemented effectively.

The test of Pakistan’s resolve lies ahead. Will it use the proposed US funding as an opportunity to embark on meaningful reforms or simply inflate its reported gross reserves? The answer will determine whether this development marks a genuine turning point for Islamabad’s economy – or just another chapter in its long history of struggling with debt and reform.