Pakistan is sliding into chaos. The only exit is a third republic.

A conversation framed around chaos, not crisis

The episode opens with Muzamil introducing Dr. Mohammed Ahmed Zubair with unusual care. Zubair was most recently chief economist for the Planning Commission, and before that spent twenty-two years as lead economist at the Islamic Development Bank in Jeddah. His academic training — mathematical economics at LSE, a master’s and PhD in economics at Sussex — sits behind the frame he brings to Pakistan: the mathematical theory of chaos, system entropy, and black swan events.

Muzamil is candid about why he keeps returning to Pakistan’s macro story. “I am honestly tired of hearing about Pakistan’s problems,” he says at the top. The interesting question now is not what is wrong but how the country gets out. Zubair’s answer is the thesis the conversation revolves around: Pakistan is heading toward a third republic. Not in the sense of breaking apart, but in the sense of resetting the social contract between the state and its citizens. The first republic, in his reading, ran from 1947 to 1971 and ended with the loss of East Pakistan. The second began with the 1973 constitution and has been running on the same chassis ever since. The third, he argues, is already starting to become inevitable.

Why chaos is the right word

Zubair is precise about why he leans on the language of chaos. Economic outcomes depend on economic institutions, and economic institutions depend on the quality of the political process. When those institutions become unstable, the system stops behaving in linear ways. Non-linearities, randomness, and uncertainty creep in. “That is a killer for economic performance,” he tells Muzamil. “It is a killer for the performance of economic institutions.”

He points out that this is not a uniquely Pakistani disease. Many developing economies — and some developed ones — have lived through chaotic stretches. The escape is usually a reform programme designed to reduce randomness in the system so that the transaction cost of dealing with that randomness falls, freeing people to invest in their education, careers, and businesses. Pakistan is moving in the opposite direction. “We are not moving towards reform,” he says. “We are getting sucked deeply into a chaotic system, and this system is absolutely unsustainable.”

To make the abstraction concrete he reaches for the idea of a black swan event: something whose probability of occurring is extremely low, but whose consequences, when it does occur, are devastating. He gives three examples drawn from recent memory. A single street hawker setting himself on fire in Tunisia unravelled governance across the Arab world. COVID-19 disrupted supply chains and food prices on a global scale. And in Pakistan’s own case, the February 8 election — engineered, in his telling, to deliver a specific political outcome — produced results and aftershocks that have unravelled political stability. “We are barely keeping our head above water,” he concludes. “We are just barely surviving.”

Balochistan, football matches, and peace-building over conflict resolution

Muzamil pushes Zubair on the texture of the problem with a story from Balochistan. He had recently sat with stakeholders from across the spectrum — government, military, militants — and noticed that everyone agreed on the problem, even agreed on the broad shape of the solution, and yet nobody was willing to act. Each pointed at someone else.

Zubair responds with a vignette from his Islamic Development Bank years. Around 2012, while working with the World Bank, OECD, and UNDP on Yemen’s tribal conflicts, he watched peace-building specialists do something that sounded almost trivial. “They said, let us start with a series of football matches,” he recalls. The idea was that sustained conflict requires a narrative of evil on the other side, a narrative in which the other is barely human. A football match, with families in the stadium, punctures that narrative. After two or three matches, people stopped seeing each other in the same way.

The lesson he draws is not about football but about framing. Conflict resolution — adjudicating who is right and who is wrong — rarely helps. Peace-building, which introduces small acts that humanise the other side, can. The same logic, he suggests, applies to the political and economic stand-off inside Pakistan.

What the word “reform” actually means

The conversation then turns to a word that Muzamil notes is used constantly and defined almost never. People say Pakistan needs structural reforms, but when pressed on what that means, “mostly I get silence.”

Zubair refuses to let the word stay vague. A reform, he says, is meaningless without a benchmark — an ideal state you are trying to move toward. You cannot say you want macroeconomic stability, a realistic interest rate, a sustainable exchange rate, and a particular growth rate without first answering a more fundamental question: are you aiming at a socialist economy, a private-sector-led economy, or a competitive market economy?

Here he draws a distinction that recurs throughout the episode. Pakistan’s elite habitually talks about “private sector led growth,” and Zubair considers that framing a mistake. “It is only focusing on the producer side,” he says. “When you talk of market economy, producers and consumers are part of your equation. Consumers too have a right to quality and affordable products.” A policy regime built around private-sector promotion drifts inevitably toward elite capture and rent-seeking. A policy regime built around a competitive market economy keeps consumers in the frame and forces producers to compete.

A reform, in his definition, is a measure of the distortion between where you are and that ideal. Reducing the distortion means identifying who loses, estimating the cost of compensating them, and building that adjustment cost into the programme. He cites the privatisation of nationalised commercial banks as a case where this was actually done well — banks were recapitalised, surplus staff received golden handshakes, and there was no public outcry. The adjustment cost was funded, not avoided.

Why incremental reform is no longer available

Muzamil takes Zubair’s framing and applies it to the present moment. The problem now is not a single broken institution like PIA or Pakistan Steel. The problem is structural — a power-connected elite captures incentives, tax breaks, and policy concessions across the entire system, so resources flow to the well-connected rather than the efficient. Farmers, the only actors in the supply chain actually producing wealth, are the least compensated. Urban capital is prevented from flowing into rural productivity. Tax structure distortions ripple into pricing and margin distortions across the board.

“We have reached a point where you cannot reform one item at a time,” Muzamil argues. “It is going to happen all at once and very rapidly, and that is going to be like ripping the band-aid. Someone has to take that pain.” His framing is grim: Pakistan is sitting in the denial stage of the five stages of grief. The old order is dead, the rent-seeking class refuses to accept it, and the longer the denial runs, the more painful the eventual implosion. Zubair agrees completely. “I am glad you have put it this way,” he says, before introducing the third republic thesis in full.

Debt restructuring as the starting point

For Zubair, the third republic does not start with a new constitution or a new political coalition. It starts with debt restructuring — both foreign and domestic. He is blunt about why. Pakistan has, in his words, “very successfully managed to avoid debt restructuring, but at huge cost to the economy and to the citizens.” Economic activity is being deliberately suppressed in order to generate the surplus required to service external and internal creditors. That surplus comes at the cost of jobs, productivity, and any meaningful investment in social mobility.

Muzamil raises the recent Standard Chartered transaction — a 600 million dollar loan at 11% dollarized interest. Zubair calls it “very unfortunate” and warns that it has set a benchmark in the market for other creditors that will make Pakistan’s debt sustainability worse, not better. He insists that “default” is the wrong word for what is needed. The right word is debt restructuring. The Pakistani status quo class, he says, has turned a technical term into a slur. “We should look at our current set of circumstances in a dispassionate, non-emotional way.”

Debt restructuring matters because of what it unlocks. It creates fiscal space. That fiscal space is what funds the cost of adjustment — the compensation of losers, the negotiation of reforms, the room to cut government expenditure rather than chase ever-higher tax growth. He points to the budget numbers. FBR tax growth is being projected at 40% for the current fiscal year, with direct taxes at 48% and indirect taxes at 35%. “Impossible,” he says. “This is not sustainable.” The instinct to lift the tax-to-GDP ratio is the wrong question. The right question is how to cut government expenditure, and debt servicing is the single biggest line item to attack.

He recalls that Pakistan received debt relief after 9/11. Right up to 2008 or 2009, the debt-to-GDP ratio declined. After that it started climbing again. “We basically wasted that debt relief,” he says. The country did not use it to transform the economy — to create job opportunities, to push industries into new products, to enable social mobility, to widen access to education. Debt relief without reform is just a longer rope.

Why diaspora money and FDI shortcuts will not work

Muzamil asks the harder question. Can he actually see this happening? The current PDM government, a hybrid stakeholder system in which the rent-seekers are also the decision-makers, has every incentive to avoid the pain. PTI, even from opposition, has never sounded ready to take that political capital hit either.

Zubair is candid. “Realistically, if I assess it, I find it very difficult.” Across the military, PDM parties, and PTI alike, he says, the understanding simply is not there. “Ninety-nine point nine percent of commentators, specialists, politicians — they believe that our problem is a financing or financial problem. That is the end of the story.” Hence the procession of finance ministers drawn from banking backgrounds and the endless hunt for the next IMF tranche, the next World Bank facility, the next bilateral loan.

He singles out PTI’s vision of asking the diaspora to repatriate money and invest in bonds and real estate. “This will also be a big disaster,” he warns. The reason is simple. An economy already trapped in multiple distortions, without productivity-led growth, without value addition, surviving on import tariff protection, remittances, and agricultural output, cannot absorb new capital productively. He compares the situation to Vietnam, which attracted 15 billion dollars in FDI in the first half of 2024 from South Korea, mainland China, Taiwan, and Singapore, and exported 150 billion dollars in the same six months. “Imagine what kind of worries they have,” he says. “Clearly they are doing something different in this day and age.”

Muzamil sharpens the metaphor. “Your engine is broken. However much petrol you pour in, it is not going to produce anything. It needs fine-tuning.” Zubair agrees. “All that financial input would be totally wasted.”

What a competitive market economy actually requires

Muzamil asks Zubair to imagine he is the one designing the system. What would it look like, in two or three minutes? Zubair’s answer starts with productivity. Pakistan’s productivity, he says, is “one of the lowest in the global South, and it is declining.” Compared to Bangladesh, India, or Vietnam, the trajectory is going the wrong way. At the Planning Commission he ran a small exercise asking how long it would take Pakistan, at current trends in total factor productivity, to reach Vietnam’s per capita income. The answer was twenty years — and that only catches Pakistan up to where Vietnam stands today, not where Vietnam will be by then.

Building productivity, he says, takes generational saving. He uses his own family as the example: his great-grandfather, grandfather, and father each did the work that allowed him to go from a village to the LSE. “Nations have to save in exactly the same way.” Pakistan’s national saving rate sits at 9 or 10 percent. India, Vietnam, China, and other emerging economies sit at 35 to 55 percent. Any investment done on top of a saving rate that low has to be debt-financed, and externally-financed debt leaks back out.

His policy starting point is therefore a drastic cut in government expenditure. The public sector is borrowing from a thin pool of private-sector savings and consuming it without producing returns. He insists this is not ideological; it is arithmetic. From there, he wants strict limitations on sovereign public debt, with the government’s primary role narrowed to providing macroeconomic stability — keeping inflation, exchange rates, and interest rates balanced — and letting the rest of the economy find its own way.

He is equally clear about what not to do. Pakistan should not chase showpiece industries or enclave projects. “Special economic zones” with bespoke tax concessions for new investors are, in his framing, enclaves where special people get special jobs while the broader economy stays where it is. The alternative he points to is cluster development — the Sialkot and Gujranwala model, where specialised local supply chains compete with Chinese imports on their own terms. “Our existing growth nodes, our existing skills, our competitive advantages — scale those up,” he says. “Start your economic growth journey from there.”

Normalising the society before normalising the economy

A passage near the end of the conversation cuts deeper than the macro analysis. Zubair makes the point that Pakistan is not, by any honest measure, a normal society. Trust is low. Social capital is low. Discipline is low. Multiple radicalisations and multiple conflicts run through the body politic. “The moment you step out of your localities and inner circle of friends, it is a very rough society to live in, to survive in.”

He uses the firewall and freelancer episode as an illustration of how policy-making in this environment turns on its own citizens. The freelancer economy was not built by public policy. Young people from Gilgit to Karachi found a market opportunity and worked their way into it. The firewall arrived from somewhere else entirely. “These are kinds of things that are quite inexplicable. The reason we do it is because we have an elite which is self-serving, not geared toward serving the general welfare.”

Normalising society — de-radicalising, de-conflicting, building trust, restoring basic civic discipline — is, in his account, not a soft adjacent goal. It is a precondition for any serious economic reform. And it requires resources. Which is, again, why debt restructuring sits at the top of his list.

The closing question and a clear answer

By the end of the conversation, Muzamil offers a long summary back to Zubair, which Zubair accepts. The sequence is: build a vision of where the country should be in thirty years, restructure debt to create fiscal space, compensate the losers of adjustment, cut government expenditure rather than raise taxes, and orient the entire system around a competitive market economy with the consumer at its centre.

Muzamil’s final question is personal. Zubair retired in August 2020 with the means to settle anywhere in the world and chose Pakistan. He had reasons. There had been a continuous democratic dispensation since 2008, with peaceful transfers of power. PTI’s election in 2018 added to that optimism. The last two and a half years, in his telling, have stripped that optimism away. “The nakedness of the entire system has been totally exposed. The raw power struggle is in full display.”

He is unsentimental about what happens next. Pakistan cannot remain inside a chaotic, non-linear system indefinitely. He compares the choices on offer to other models: military-led governance like Egypt or Myanmar, single-party legitimacy earned through liberation struggle like Vietnam or China, majoritarian authoritarianism like Bangladesh — and the democratic contestation, however imperfect, of India, Indonesia, and Turkey. Whichever model Pakistan chooses, the hybrid uncertainty has to end. “Whoever has to govern, let them govern. Once for all. So that everybody else is clear, and the consequences play out.”

Muzamil closes the episode the way he opened it. If the country tries to keep running a system where “something is on top, something is underneath, and nobody really knows what is going on,” it is a mathematical certainty that the system slides into a death spiral. The only escape is a clean linear path that everyone can see and agree to. The third republic, in Dr. Zubair’s framing, is not a slogan. It is the structural reset the numbers are already demanding.