Pakistan needs policies that pinch now and pay off later

Structural reform starts with the direction of the economy

Muzamil opens with a frustration he hears often. Everyone says Pakistan needs structural reforms. When he asks guests and experts what those reforms are, the answers get vague. His conclusion, after his own research and many conversations on the podcast, is that reform means correcting the direction of the economy. No one-line list of fixes will do it.

“Before you talk about structural changes, you first have to understand the direction of the economy and its overall structure,” he says. This episode is his attempt to build that picture in plain words, so that later episodes on loans, the dollar and energy have a base.

He also notes a change he is glad to see. Over the last two or three years, Pakistanis have started talking about the economy beyond petrol and dollar prices. People are tired of hearing that the country is always at a delicate turning point, and they want to understand why.

Pakistan as a joint family house

To make the economy concrete, Muzamil asks the viewer to picture a large joint family house. Twenty, thirty, forty people live in it. Every two or three years the family picks a new head, and each new head brings a new policy for the house. Should the family eat out or at home? Should the shared income go to education, new furniture, or a coat of paint?

Good parents run this house with a long view. He uses a familiar example: parents often put the air conditioner in the child’s room before their own. They do it so the child sleeps well, studies well, and one day becomes a productive member of society.

Now he widens the frame. Pakistan is one house in a neighbourhood. India is another, Sri Lanka another, and further away America has a palace. The family can grow some wheat or pick apples in its own garden. But to earn real money, people leave the house, work outside, and bring back what they buy. They also trade with neighbours, sending apples next door and getting strawberries back. “You have to imagine the country exactly the same way,” he says.

A modern economy runs on trade, and trade runs on dollars

Muzamil stresses that a modern economy is complex. People need more than food, clothes and a roof. They need phones, internet, transport and travel, and these things are made from parts and raw materials sourced from all over the world. No nation can produce all of it alone, in the same way a house has no room to grow wheat and keep cows and chickens.

Demand is also rising. He says the majority of Pakistan did not have consumer items 10, 15 or 20 years ago. Over the last 20 years, households have slowly added fans, fridges and irons. Young people connected to the internet now want good clothes, phones and games. He does not see this as bad. As societies develop, wants turn into needs.

That trade has to be paid for in dollars. Inside the house, cousins can swap favours with paper tokens. Outside, nobody accepts the tokens. “Outside Pakistan, nobody asks for rupees. They ask for dollars, because the dollar is the world’s currency at this point in time.”

Pakistan earns dollars in three ways. It sells products, such as textiles and Sialkot’s surgical goods and footballs. It sells services, such as IT. And it sends its people abroad, who send remittances home.

Loans and investment always come with conditions

There are two more ways to bring dollars in for a while. The first is a loan. Muzamil uses the house again: if you ask a neighbour for money, he will ask why you need it and when you will pay it back. That is why the IMF and the World Bank attach conditions. “You would always tell someone why you need the money and where you will spend it,” he says, and the lender decides on that basis.

The second is foreign direct investment. Here the example is a relative from America who visits, sees promising children, and buys the family a sofa or a TV because he expects a return later. “No foreign direct investment is free money,” Muzamil says. “Every person, every community, every nation, every bank, every financial institution is looking at its own interest.”

Selling the furniture: privatisation under the SIFC

Muzamil explains the Special Investment Facilitation Council (SIFC) in economic terms only, without going into its politics. If you cannot raise your salary quickly, you borrow what you can and then sell things in the house that nobody uses. A sofa nobody sits on. A car that costs more to maintain than it is worth.

He says this is where Pakistan is now. It spends billions of rupees a year to keep PIA running. So it is looking at selling PIA, electricity distribution companies, oil companies like OGDC, airports and other infrastructure to bring in dollars. Some assets may be sold outright. Others may be handed over on toll-style arrangements.

He sees three timelines:

• Short term: selling the expensive things bought in good times, to raise money fast.
• Medium term: his expectation, over the next two to two and a half years, is larger projects like the proposed 10 billion dollar Saudi oil refinery. Much of that money will arrive as foreign machinery, he cautions, but a sizable amount will flow in over time.
• Long term: mining in Balochistan, which he expects to pay in five to ten years. He mentions the Balochistan gold mine agreement, where the operating company invests, keeps a share of output, and the provincial and federal governments receive the rest.

For the longer projects, he adds, investors need security and discipline. If children keep trampling the lawn, nobody will farm it.

Two ways to cut imports, and what each one costs

When there are not enough dollars, the government can cut imports. Muzamil says Pakistan had been doing this for about a year and a half, and the strain was becoming hard to bear. The numbers look better quickly. But every imported product supports agents, transporters and sellers. When the goods stop, those people lose work, stop spending, and the local economy slows. “It directly creates resentment. It directly creates frustration,” he says.

The other path is to let the market set the dollar price. Rupees chase a limited supply of dollars, the dollar gets expensive, and people stop buying imports on their own. He contrasts this with the approach of holding the dollar static at 280 and banning selected imports. The free market reaches balance between exports and imports, but it hits everything, including essentials like medicine and energy. His example: in trying to stop the rich from buying cars, you may turn a 10 rupee Panadol into a 50 rupee one.

He refuses to call either path right. His point is that both have costs. “Every policy decision will have a pro and a con,” he says. Some people gain, some lose. He blames Pakistan’s politicians for planting the idea that one decision can make everyone better off.

The strict uncle from abroad

To explain why painful policies can still be right, Muzamil returns to the house. A new uncle takes charge. He stops the eating out, the late nights and the air conditioning. Everyone sleeps in one room under a fan. The children must study and the adults must work harder, so the family can repay its debts.

The children complain. But anyone watching from outside can see that the uncle is thinking long term. If the children study now, they will later earn 50,000 rupees in a job “with dignity” instead of spending 10,000 a month on borrowed money. Then they will have the air conditioning and the meals out, and they will have earned them.

“Pakistan needs many policies like this,” he says, “that will annoy you for a while, pinch you for a while, worry you for a while, but in the long term will work in your favour.”

What comes next in the series

Muzamil closes by saying this episode was only the foundation. He wanted viewers to hold the house in mind and ask what they would do if it were their own home. Coming episodes will cover the fiscal deficit, why the dollar price is more complicated than which government “kept it at 160”, energy and electricity, agriculture, education, and how Pakistan can position itself for the changes coming in the world. He asks viewers to tell him in the comments what he missed or got wrong.