There is news in the print media that the external debt of Pakistan was hovering around $92 billion till March 2018.The current government is blamed for an astounding increase in the external debt and liabilities over the past four and a half years. There is half-truth in this statement since it ignores the benefits which are associated with the seeking of external debt.There is scarcity of foreign exchange in every developing economy. Normally, the shortage of foreign exchange compels governments either to attract foreign capital or borrow through bilateral, multilateral or commercial sources. This scarcity acts as an external constraint and doesn’t allow the economy to grow fast.As far as the case of Pakistan is concerned, its economy can grow at a pace of 5% without any significant balance of payments (BOP) crisis since the 5% growth rate acts as a ceiling considering the export structure of the country. As growth rate crosses this ceiling, alarm bells start ringing on the BOP front.Pakistan government usually went to the lender of last resort ie the International Monetary Fund (IMF) to manage its BOP front. From 2013 to 2016, the country remained under the Extended Fund Facility (EFF) of the IMF, which helped in bolstering foreign exchange reserves of the country.Similarly, other multilateral lenders – the World Bank, Asian Development Bank (ADB) and Islamic Development Bank – provided necessary budgetary and project-related support to Pakistan.The economy remained range bound between 3.8% and 4.5% growth since the focus of the IMF was on macroeconomic stability. The low growth rate reduces imports, which helps in increasing the foreign exchange reserves.In addition, lower oil prices provided a significant cushion to policymakers in Islamabad to maintain the oil import bill. Last but not the least, the government resorted to commercial borrowing in the form of Eurobond and Sukuk since the IMF programme increased the confidence of international investors to some extent and they invested in the bonds.Since September 2016, when the country came out of the EFF, the government decided to give an impetus to the economy through the China-Pakistan Economic Corridor (CPEC)-related imports. As a consequence, the imports grew in double digits, which also helped in pushing the economic growth rate beyond 5%.The downside of this is that precious foreign exchange reserves started to tumble despite expensive short-term commercial borrowing and loans from Chinese banks. Now the economy is at the crossroads where there are two options left for the upcoming government.First, the economy may slow down as already forecast by the IMF or the ADB in their projections to around 5%. This slowdown will reduce economic activity by curtailing imports. The curtailment of imports will help in increasing the foreign exchange reserves.Second, the economy keeps growing and crosses the 6% mark, which requires increased gross external financing. That is the reason reports are coming out that Pakistan requires around $24 billion in FY19.These high external financing requirements will increase the external debt a great deal which is a risky strategy.In a nutshell, every government intends to achieve high economic growth given the external constraint of precious foreign exchange. The government is able to achieve high economic growth of 5.5%, but cracks started to appear in the external sector. With every passing week, the BOP crisis is getting closer though the government keeps on borrowing from external sources.Under the emerging situation, the likely possibility is that the economy will slow down again in line with the precarious foreign exchange situation and the new IMF programme will be negotiated soon.The writer is an Assistant Professor of Economics at SDSB, Lahore University of Management Sciences (LUMS)Published in The Express Tribune, May 21, 2018.Like Business on Facebook , follow @TribuneBiz on Twitter to stay informed and join in the conversation.