Pakistan has three to four weeks before it defaults

A perfect storm that has already brewed

The episode opens with Muzamil framing the mood of the moment: every alarming word in the economic vocabulary — bankruptcy, default, hyperinflation, stagflation — is being used simultaneously by commentators online. The guest he has brought in to cut through the noise is Javed Hassan, chairman of the Economic Advisory Group, a collective of economists based across Pakistan and abroad.

Javed Hassan’s biography is itself an unusual one. Born in Nigeria in 1965, raised there through his O levels and A levels, he went on to study civil engineering at Imperial College London, worked as an engineer for three years, completed an MBA at London Business School, and then spent the 1990s in investment banking — at Barings, Crédit Lyonnais, and eventually Credit Suisse in Hong Kong as a fund manager. He returned to Pakistan in 2006, ran an insurance company and then an investment bank in Karachi, moved into skills-training charity work in 2013, and eventually relocated to Islamabad, where he chaired the National Vocational and Technical Training Commission before co-founding EAG.

He mentions early in the conversation that his primary school education in rural Nigeria took place in mud huts, with goats occasionally wandering into class. The point he draws from it is not nostalgic: “Education काफी हद तक जो होता है वह अपने شوق سے بھی ہوتا ہے اور parents کیا پڑھاتے ہیں” — education is largely about curiosity and what parents instil, not the quality of the building. It is a theme he returns to when discussing Pakistan’s obsession with university credentials over vocational skills.

Three billion dollars, not ten

Muzamil asks the direct question early: what is actually happening, and why?

Javed Hassan’s answer is blunt. He had written an article titled “A perfect storm is brewing.” By the time of this recording, he says, it has already brewed.

The official reserve figure of around ten billion dollars is, he argues, misleading. Strip out the Saudi deposits, the Chinese bilateral swap lines, and obligations that are already maturing, and the usable figure is closer to three billion. “Literally रہ جاتا ہے جو ابھی جو IMF جو calculation کر رہا ہے it’s based on three billion. Three billion میں اور بھی پیسے واپس کرنے ہیں اگلے ڈیڑھ مہینے میں. So we potentially and literally — I’m not trying to be a scaremongerer — ہمارے پاس تین سے چار ہفتے رہ گئے ہیں before we default.”

He is careful to explain what default actually means for ordinary life. It is not an abstract accounting event. It means the country cannot meet its external obligations. It means, as he saw in Argentina in 2001, that banks freeze, that engineers and doctors end up on the street. Sri Lanka, he notes, was already experiencing twelve to eighteen-hour load-shedding because it could not pay for fuel imports.

The financing arithmetic he lays out is straightforward. Pakistan needs to repay roughly eighteen billion dollars over the next twelve months. About half can be rolled over; multilateral loans can be extended. But roughly a quarter — bond payments — must be repaid in cash. On top of that, the current account deficit is running at one to one and a half billion dollars per month. Add it up and the country needs somewhere between sixteen and thirty billion dollars in external financing over the next year, depending on how much rollover is achieved. None of that rollover happens without an IMF programme, because bilateral creditors — Saudi Arabia and the UAE had already turned Pakistan away at the time of recording — will not extend credit outside an IMF umbrella.

The bond market had already delivered its verdict. Pakistan’s international sukuk, originally issued at around eight and a half percent, was trading at a yield of 22 percent. “That is default yield,” Javed Hassan says. “Quite simple what the markets are saying — کہ آپ already default کر چکے ہیں.” The credit default swap premium — effectively the insurance cost a lender charges against Pakistan defaulting — had gone from three and a half percent in February to nine percent by the time of recording, having doubled almost overnight when political uncertainty intensified.

What a default actually feels like for a family earning ninety thousand rupees

Muzamil steers the conversation toward the person who is not following bond yields — the mid-level professional with two children in school and a monthly salary of ninety thousand rupees.

Javed Hassan’s answer is specific. Bringing petrol prices to international levels would mean an immediate increase of fifty rupees per litre on petrol and ninety rupees on diesel. Electricity tariffs would need to rise by eight to eight and a half rupees per unit on top of an already-high base. Official inflation was running at 13.5 percent; he expected it to move to sixteen to eighteen percent overall. But the real damage, he says, is food inflation: “جو وہ masses کو hit کرتی ہے.” Food inflation was already at fifteen to sixteen percent and heading toward twenty to twenty-five percent. For a household spending thirty to forty thousand rupees a month on food out of a ninety-thousand-rupee salary, that is not a statistic — it is the destruction of purchasing power.

“So we are in a situation where over the next six months we will actually see people beginning to feel hungry,” he says. And that is the scenario without a default. With a default, the country could face what Sri Lanka was already experiencing: no fuel to import, extended blackouts, a breakdown of basic services.

The right decisions, he argues, are painful but not complicated: end petrol subsidies, meet IMF conditionalities, cut government expenditure including development spending, accelerate privatisation, and use targeted subsidies — funded through World Bank and multilateral channels — for those earning below a threshold, so that the poorest are protected while the broader distortions are removed.

The luxury car that costs fifty lakhs and the infant industry that never grew up

The structural diagnosis takes up the middle portion of the conversation. Muzamil asks why Pakistan keeps arriving at the same crisis.

Javed Hassan’s answer centres on what economists call productive capacity and economic complexity. Pakistan’s economy, he argues, cannot grow at six or seven percent without generating a balance-of-payments crisis, because it does not produce enough domestically to sustain that growth. It has to import the difference, and those imports drain reserves. The remittances from Pakistanis working abroad — now approaching thirty billion dollars annually — have historically papered over this gap, but they fund consumption rather than investment in productive capacity.

The evidence he cites is the economic complexity index. In 2000, Pakistan ranked 102nd in the world. Today it ranks 99th — essentially no movement in twenty years. Vietnam, which ranked 102nd in 2000, now ranks 62nd. India has moved from around 60th to 42nd. The Philippines sits at 35th.

The reason, he argues, is that Pakistan has never forced its industries to compete. The textile sector is the clearest example. In 2000, Pakistan exported around seven to eight billion dollars of goods, mostly basic cotton products. Today, the composition is almost identical — low-value, commoditised, price-dependent. “آپ literally اور ان کو جو ہے I am sorry to say آپ ٹا مار ہر سال انہیں subsidy پر subsidy ملتی جاتی ہے.” Subsidised electricity, subsidised export financing at four percent, protection from imports. The result is what he calls a “spoiled forty-year-old infant industry” — one that has never needed to innovate because the government has always absorbed the cost of its inefficiency.

Vietnam’s trajectory is the contrast. In 2000, it exported crude oil and rice — raw commodities with no value added. By 2019, its top exports were broadcasting equipment, high-end textiles, luxury leather goods, and services. “Completely اُن کا اسی کو کہتے ہیں economic transformation.” Pakistan’s export chart, he says, looks almost the same in 2022 as it did in 2000.

The sugar industry illustrates the absurdity most sharply. Pakistan’s sucrose extraction ratio — the amount of sugar extracted from cane — is seventeen to eighteen percent in Sindh and eleven percent in Punjab. Brazil and the West Indies achieve thirty-five percent. Sugar cultivation is also water-intensive in a water-scarce country. Yet the industry receives protection, import bans, and subsidies year after year. “یار دیکھیے مُزمل this is exactly the point. ہم لوگ اس قسم کے subsidies اور protection دے کر جہاں actually اپنے سے لوگ ڈھونڈ کے کہ کیا efficient ہے اور لوگ ڈھونڈ لیتے ہیں.”

He names the underlying concept: elite capture and rent-seeking. The industries that are already large and profitable have captured the policy-making process and used it to extract subsidies rather than build competitive capability. The money that should be reinvested in productive capacity ends up in Dubai real estate — he references a figure of ten billion dollars’ worth of Pakistani-owned property in Dubai as an illustration of where the surplus goes.

The IT sector and rice: what happens without subsidies

The optimistic counterpoint in the conversation is what happens when subsidies are absent. Javed Hassan points to two sectors.

IT and freelancing have grown with zero government subsidy. Young people write software, sell services internationally, and earn foreign exchange. The sector has expanded precisely because the government was not involved enough to distort it.

Rice is the more surprising example. “There’s no subsidy but that is the best thing. جہاں subsidy نہیں تھی انہوں نے innovate کرا — rice growers نے نئے seeds لائے بہتر and they have grown about five times in the last ten years.”

The implication is direct: when the government removes itself from price-setting and protection, entrepreneurs find where the comparative advantage actually lies. He invokes the economist Friedrich Hayek — “a very famous economist philosopher” — on pricing as a signalling mechanism. When the rupee depreciated, the IT sector’s dollar earnings became more valuable in local terms, investment followed the signal, and the sector grew. Mobile phone assembly followed the same logic when import costs rose. “آپ جب وہ ڈیئر ہے کہ dollar price بڑی ہے آپ نے دیکھا کہ یار یہاں پر کرنے میں مجھے فائدہ ہو رہا ہے تو آپ کو assembly یہاں پر ملی.”

Real estate, savings, and the unproductive use of capital

Later in the discussion, Muzamil raises real estate — partly from personal experience, having watched a plot bought for twenty-three lakhs in 2019 appreciate sharply by 2021. Javed Hassan uses it to make a broader point about savings.

Pakistan’s savings ratio sits at eleven to twelve percent of GDP. Bangladesh is at twenty-eight to twenty-nine percent. India is at twenty-four to twenty-five percent. The gap matters because savings are the raw material of productive investment. When savings go into real estate, they do not increase productive capacity, do not generate exports, and do not create jobs. “Property if you think about it is one of the most unproductive sources of investment. It’s not generating wealth. یہ تو consumption ہے.”

He is critical of the previous government’s focus on the construction sector as an economic stimulus. The money that flowed into real estate during that period, he argues, was money that did not flow into factories, technology, or skills. Singapore and Hong Kong built their skylines after generating export surpluses — not before. “ہم لوگ ابھی surplus generate نہیں کر رہے ہم لوگ lifestyle وہی ایسا live کرنا چاہتے ہیں surplus as well.”

The banking system compounds the problem. Pakistan has one of the lowest rates of formal bank account ownership in the world. Banks earn a comfortable spread between their cost of deposits and the return on government treasury bills — currently twelve to fifteen percent — and have little incentive to extend themselves into financial inclusion. “کیوں مہنت کریں؟” Javed Hassan asks. Regulators should be pressing banks to expand their account base; instead, opening an account feels, he says, like the bank is doing the customer a favour.

Political capital and the structural reform dilemma

By the end of the conversation, Muzamil and Javed Hassan arrive at the central political problem: the reforms that would fix the structural issues are also the reforms that lose elections.

A planning commission official had told EAG directly: “آپ کی بات تو بڑی سی ہی کرو مگر یہ کون سی comment کرے گی؟ جو comment کرے گی اسے تو election میں پھر واپس نہیں آ رہا.” The politician who removes petrol subsidies, cuts government fat, and ends protection for powerful industries will face the consequences at the ballot box before the benefits materialise.

Javed Hassan’s response is that this underestimates the public. People who have been suffering for years are willing to accept sacrifice if they are given a credible vision of what the sacrifice is for. “They are willing to take the sacrifice. شاید میں اور آپ اتنے نہیں sacrifice لے سکتے ہیں.” What has been missing is a leader who can articulate that vision in terms people trust.

He also makes the point — carefully, given his investment banking background — that corruption is not the root cause but a symptom. “Corruption جو ہے اس لیے ہوتی ہے اس لیے کہ government ہر چیز میں involved ہے.” If the government sets the price of sugar, there will be corruption around sugar pricing. Remove the government from that role and the corruption opportunity disappears. The solution to corruption, in his framing, is not more enforcement but less government involvement in commercial decisions.

A population of 220 million, half of them under 22

The episode closes with Muzamil asking Javed Hassan the question he puts to every first-time guest: how does Pakistan look in 2050?

The answer is brief and unambiguous: “We will be looking at a post-Olympics.” He says it with confidence.

The reasoning behind it, laid out across the conversation, rests on demographics and on what happens when markets are allowed to work. Half of Pakistan’s population is under 22. Italy, England, and Germany have median ages around 40. “In a population of 220 million, 100 million under 22, imagine the number of geniuses just waiting to burst.” The intelligence, he argues — citing a principle he encountered at university — is equally distributed across the population. The tragedy is that elite capture has meant most of it never gets the chance to express itself.

The IT sector, the freelancers, the rice farmers who innovated without subsidies, the driver’s sons who opened their own businesses rather than waiting for a government job — these are the data points he returns to. The structural reforms are painful and the short term is genuinely difficult. But the underlying material — the people — is there.

“Free the markets, free the people, give them the choices. We will achieve it and I am absolutely certain.”