Pakistan will outgrow its government, not be saved by it

The bull case the headlines miss

The episode opens with Muzamil framing the conversation as a follow-up to a four-part series Farooq Tirmizi wrote for Profit magazine — a sequence on Pakistan’s power sector, demographics, education, and a closing piece titled, plainly, the bull case for Pakistan. Muzamil’s praise for the series is specific. It is backed by data. It is not, in his words, “vibes and opinions, which you get a dime a dozen in Pakistan right now.”

Muzamil sets the question early. With that title, what is the bull case? What is Tirmizi seeing that most Pakistanis are missing?

Tirmizi’s answer reframes the entire conversation. “The government of Pakistan can make it better. It can’t make it worse,” he says. The bull case, in his telling, has two halves that need to be heard together. The first is that the indicators that typically drive a country’s long-run trajectory are pointed in the right direction in Pakistan. The second — and this is the part he keeps returning to — is that those indicators are not the kind the government can damage from here. “We don’t need somebody, some perfect leader, to come in with a massive reform agenda. We don’t need that. We can continue with the government of Pakistan being the way it is — as incompetent, as corrupt as it is — and it will still work.”

That framing matters. Tirmizi is not arguing the state is fine. He is arguing the state is roughly irrelevant to the next move.

Why the 2022 crash rhymes with 1997 Asia

Muzamil pushes on the comparison set. If the case is that Pakistan looks like other emerging economies that came through crises — Turkey, Indonesia — what should viewers take from how those countries crashed? He recalls Indonesia losing something close to ten to fifteen percent of GDP in the 1998 collapse.

Tirmizi’s response is the first sharp claim of the conversation. The 2022 Pakistan crisis, he argues, is structurally very similar to the 1997 Asian financial crisis. The same mechanism caused both. A country borrows heavily in foreign currency to stabilise an artificially-held exchange rate and to subsidise consumption of imports. “You can’t hold these things forever,” he says. The currency eventually breaks. The economy contracts.

He then adds a nuance Muzamil does not interrupt. The crisis countries of 1997 had at least built power plants and infrastructure with their borrowed money. “Not the right way to do it, but if you are going to borrow money and burn it, at least burn it on something you can use later — an asset, not consumption.” It is a quiet rebuke of how Pakistan deployed its own borrowing during the same window.

The power sector death spiral, and why it isn’t one

Muzamil voices what is probably the most common Pakistani objection to any optimistic case right now. Electricity is at sixty-five rupees a unit. In Dubai, where he is recording from, the same furnace-oil-derived power costs twenty-four. Industry cannot compete. Households cannot pay. Defaults are rising. Recovery is falling. The price keeps going up to cover the gap. “I am calling it a death spiral,” he says.

Tirmizi accepts the diagnosis and rejects the conclusion. The rate is high because of capacity payments — Pakistan built far too much capacity, and consumers are now paying for the idle plants. But, he points out, an economy does not sit in depression forever. “Slowly, slowly, people adjust. The economy adjusts, if you let it adjust.” When economic activity recovers even slightly, electricity consumption recovers, and the per-unit capacity charge falls. The nominal rupee price will not drop. The inflation-adjusted price, as a share of purchasing power, will.

Muzamil pushes for a more aggressive read. Could the government not absorb the capacity payments directly, shrink ministries, and pass the relief through to consumers — accelerating the cycle rather than waiting a decade? Tirmizi’s reply is one of the cleaner lines in the episode. “Mathematically, there are lots of solutions. But what is your expectation of the government of Pakistan?” The honest base case, he argues, is to assume the state does nothing useful and to model the recovery on that assumption. “If they end up doing better, that is an add-on. Prepare for the worst, hope for the best.”

The fertility number that changes everything

The conversation then turns to the part of Tirmizi’s thesis that is least intuitive to most viewers. The Pakistani horror story about population, he says, is twenty-five years out of date.

The mechanics he walks through are worth quoting at length. For centuries, the average woman in what is now Pakistan had six to seven children, and three of them died. Infant mortality was a fact of life. Maternal mortality was a fact of life. People had six children to ensure three survived. As medical technology globalised, infant mortality fell, and families gradually reduced fertility to match. Pakistan’s average is now 3.3 children per woman. “That is actually a great level,” Tirmizi says. “The ideal level frankly is somewhere between 2.1 and three. That is the sweet spot.”

The reason it matters is dependency. Muzamil presses on the standard narrative that population growth still outpaces GDP growth. Tirmizi’s correction is direct. Over the last two or three years, yes. Over ten, twenty, or thirty year averages, no — GDP per capita has grown, slowly but consistently. He cites the 2023 census, which came in lower than expected for population growth between 2017 and 2023 after coming in higher than expected in the previous inter-census window. The inflection point is happening now. He projects that the absolute number of children born each year in Pakistan will keep rising until somewhere between 2045 and 2050, then plateau.

Tirmizi then makes a point about what the rest of the world is losing. “We tease China and South Korea about old age. We are tearing up to look at a child. They will not have that — no children will be visible to them.” Pakistan, in his framing, has dodged both ends: it is not crashing into a demographic cliff like Japan, and it is no longer stuck on the runaway side either. “This is one of the biggest reasons for the bull case. It is something that changes over decades, and the government cannot damage it.”

Urban youth literacy is already past ninety percent

Education is the third leg of the series, and Tirmizi treats it as a downstream effect of the fertility shift. With three children instead of six, a household can actually fund school. “Earlier there were six children to feed and possibly two elderly parents. Now there are three.” Basic literacy reaches all of them.

The numbers he offers are sharper than the standard Pakistani literacy narrative. Overall national literacy sits around 60 percent. Urban literacy is 72. But the cohort that matters for the next twenty years — urban youth, specifically thirteen and fourteen year olds — is above 90 percent. “Pakistani schools are not good. It takes a long time for a child to get to basic literacy. The full effect shows up at age thirteen, fourteen. And it is there now.”

Muzamil checks the definition. He recalls hearing that Pakistani literacy was once defined as the ability to sign one’s name. Tirmizi corrects him. The standard now is being able to read a newspaper headline. “And honestly, for the initial phase of industrialisation, that is enough. If a sign on a factory machine says do not touch when hot, or operate this way, the worker can read it.” Muzamil extends the point by noting that smartphones and mobile internet are now doing a lot of the educating that schools are not, and Tirmizi agrees the data already reflects it. Everyone born after 1985 has literacy above 50 percent. Everyone born after 1999 is approaching 70.

Bank deposits, fiscal deficits, and the quiet mechanism nobody talks about

Somewhere around the halfway mark, Tirmizi walks Muzamil through the single economic mechanism that ties the whole thesis together. It is worth setting out carefully because it is the engine of the bull case.

Smaller families mean a household has a little more left over at the end of the month. Aggregate that across the population and bank deposits grow. The research, he says, shows the pattern clearly. As fertility crosses the three-children-per-woman threshold downward, bank deposits as a share of GDP go from 30 percent to 60. Pakistan is sitting right on that threshold.

The implication runs through the rest of the economy. Pakistan’s fiscal deficit averages around 6 percent of GDP over the course of a decade. With deposits at 30 percent of GDP, the banking sector can finance perhaps 2.5 to 3 percent of GDP in deficit through domestic borrowing. The rest the government has to get by printing money or borrowing abroad. Printing causes inflation. Borrowing abroad causes the currency crises Pakistan keeps experiencing.

Double the deposit base — which is what the demographic shift does, slowly, mechanically, without any policy change — and the banking sector can finance the entire 6 percent deficit domestically. The government does not need to print. The government does not need to borrow in dollars. “Inflation will not go down by a lot, but it will be much more stable,” Tirmizi says. The four-to-thirty percent range Pakistan currently swings through compresses to something more like four to seven or eight.

That stability, in turn, brings down interest rates. Lower interest rates make industrial projects pencil out. “Every big industrial group in Pakistan has plans on the books which don’t make sense at current interest rates but will make sense when interest rates come down.” When those plans get built, with literate workers and available electricity, the boom starts. Tirmizi’s estimate of when this point is hit is 2030 to 2033. From there, he expects something like thirty to forty years of mostly uninterrupted growth.

Muzamil notes that Goldman Sachs has independently projected Pakistan as roughly the tenth or eleventh largest economy in the world by 2075, with a GDP near twelve and a half trillion dollars. The sequencing is similar to Tirmizi’s. The first decade and a half is direction-setting. The growth comes after.

Devil’s advocate: what if the savings just feed the same machine?

Muzamil refuses to let the case stand without pressure. He puts the obvious objection on the table. If deposits grow but the banking sector keeps the easiest, risk-free trade — lending it all back to the government — then the private sector still does not get capital and the inefficiency just gets a bigger pool to feed on. The 2030 number becomes 2035, then 2040.

Tirmizi’s response is the line that, to him, distinguishes the thesis from a wish. “Sequencing matters. We are not fixing the problem. We are creating the capacity to deal with the problem.” The private-sector lending capacity, he argues, can only be built one of two ways — either the government reforms itself, which he treats as essentially zero probability, or the deposit base grows so much that even after the government takes its share, there is room left over for private credit. “We will not beat them. We will outgrow them.”

He extends the same logic to foreign debt. The path he describes is not dramatic repayment but slow refinancing. As domestic deposits grow, the government rolls foreign-currency obligations into rupee-denominated PIB issuance. By the late 2030s, in his model, most of the stock has converted. A fiscal crisis becomes possible. A foreign currency crisis becomes much less so. “If there are enough rupees to buy PIB bonds, the government does not need to go abroad. That is how this problem fixes itself.”

Muzamil adds a data point of his own. Topline Securities had published that morning that Pakistan’s debt-to-GDP ratio is at its lowest in six years, and that the net foreign debt position is roughly 70 percent — not great, but not unusual by international standards. The United States, he notes, is at 35 trillion dollars of debt. Japan’s recent carry-trade unwind has exposed its own structural problems. “In a long enough timeline, we are not actually that bad,” he says. Tirmizi agrees, with the qualifier that the next short-term squeeze is the part that has to be survived.

Emigration is exposure, not exit

Toward the end of the conversation, Muzamil raises the migration number. In 2023, Pakistan ranked first globally for net emigration — roughly 1.2 to 1.3 million people leaving, ahead of India’s 750,000. The political reading at home is brain drain.

Tirmizi takes the term apart historically. “Brain drain” was first used for British engineers leaving Oxford and Cambridge for the United States after the Second World War. India experienced it. Pakistan is experiencing it now. But there are three things, he argues, that change the conclusion.

First, the Gulf is structurally close to Pakistan. People who go to Saudi Arabia and the UAE keep a connection home that workers from other countries do not. Second — and this is the line that ties back to the demographics argument — Pakistan is now the largest country in the world with an above-replacement fertility rate. It is the only country left at scale that has the demographic capacity to send people abroad in these numbers. “Including India, China, and Bangladesh. They cannot do this.” Third, Pakistanis are largely going to countries that do not give citizenship. They come back. Post-COVID, many are simply working remotely from Pakistan and earning in dollars. Tirmizi notes, briefly, that this is literally the customer base of his own firm.

Muzamil reframes it cleanly. “It is exposure. Connections. Capital. Those things combined will eventually become available to Pakistan.”

What Europe and Japan are showing us about the alternative

The conversation closes on the inverse case — what happens to countries that fall below replacement. Japan, Tirmizi says, is the furthest along the bad path. A rich country whose economy has not grown for thirty years. Adult diapers in some markets already outsell baby diapers. The mental image of Tokyo as small expensive apartments is out of date. “You can rent a luxury apartment in Central Tokyo for two thousand dollars because Japan is no longer as rich as it used to be relative to the rest of the world.”

Europe, in his reading, at least understood the math and tried to fix it through immigration. The cultural friction Muzamil raises — the rise of right-wing nationalism in the UK and elsewhere, the conflict between aging native populations and culturally distinct replacements — Tirmizi treats as the cost of having seen the problem at all. South Korea and Taiwan, he predicts, will show the world the worst-case version of demographic collapse within the next ten to fifteen years.

Muzamil offers one closing frame. The whole conversation, viewed at altitude, is about systems — which ones produce the next century and which ones decay. Tirmizi’s answer for Pakistan is not that the system is good. It is that the math has already moved beneath it. The government will not save the country. The country, slowly, will outgrow the government.

That is the bull case.