We have killed hope: the Nishat CEO on Pakistan's broken engine

The toughest time in thirty-five years

The episode opens with Muzamil introducing Shahzad Saleem — founder and CEO of Nishat Chunian Limited, Pakistan’s fourth-largest fully vertically integrated textile company, also behind Nishat Linen and the Linen Company, a previous sponsor in an IPP, and the founder and chairman of Saleem Memorial Trust Hospital in Lahore. The brief, Muzamil tells the audience, is to understand how an export-focused industrialist with direct experience of IPP contracts is reading the current economy.

Shahzad does not soften the opening. “I have been working for thirty-five years,” he says. “Probably the toughest time I have seen for businesses is probably right now.” The diagnosis follows quickly and is structural rather than cyclical. Interest cost is one major factor; the rupee is being artificially held against the dollar even though the differential between Pakistan’s twenty percent policy rate and US rates of around five and a half percent makes that peg mathematically incoherent. “How can we remain pegged to a currency?” he asks. The countries that do run successful pegs — he cites the UAE, where the rate has held for fifteen or twenty years, and Hong Kong, pegged to the dollar for twenty-five or thirty — share the dollar’s interest rate to within a fraction of a percent. Pakistan does not.

Muzamil presses the contradiction: are we holding the rupee to fight inflation? Shahzad agrees that is the official reason, and then states the cost. “Either you want to control inflation or you want to shut down businesses, and businesses are not the kind of thing that close today and reopen tomorrow. There is a reopening cost. There are thousands and hundreds of thousands of people connected to them — employees, suppliers.” His verdict on what this is doing to the business base is unequivocal: “A lot of businesses are now in irreversible decline.”

Tax on revenue, not on profit

Shahzad does not leave the diagnosis at interest rates. He widens it to taxation, and it is here that the conversation gets into numbers that are difficult to argue with.

“The entire economy is running on advance tax collection,” he tells Muzamil. “We are paying tax before we earn.” The corporate sector pays withholding tax when it buys, sales tax on its electricity bill, and a stack of indirect taxes on inputs. In good times, this is uncomfortable. In bad times, he argues, it is a disaster.

The export-specific design is sharper. Where a normal economy would tax profit, Pakistan taxes the textile industry’s revenue. Shahzad shares the calculation with Muzamil on air: “The textile industry’s minimum tax rate today is between seventy-five percent and two hundred percent — because we have put the entire tax on revenue and it has no real connection with profit.” He then walks through the specific own-goal: exporters used to pay one percent of revenue as a full and final tax. Under IMF pressure, the government moved them to a normal corporate tax — twenty-nine percent corporate, ten percent super tax, on profit — but kept the one percent on revenue as an advance. “They doubled the tax rate,” he says, “and they added corporate tax on top. Privately, people say it was a mistake. What kind of mistake doubles a tax rate?”

The point Shahzad keeps returning to is that no government on earth taxes a brand-new factory the same way it taxes a mature, profitable one — and yet that is what revenue-based taxation does. “Nowhere in the world is this how taxes are collected,” he says. He has a request for the policymakers who keep claiming they want to support exporters: “Please don’t help us. Please remove this tax. We don’t need your help.”

Who is really evading tax

Muzamil walks Shahzad into the politically loaded question: governments insist Pakistan’s tax-to-GDP is low because businessmen do not pay. Is that true?

Shahzad splits the answer cleanly. There are two groups not paying tax, and he insists on distinguishing them. The first is the group the system has decided will not pay: agricultural income is largely tax-exempt; capital gains on real estate are at fourteen percent; stock-exchange income is at fifteen percent. “If you have yourself decided that this income is tax-free, how can you turn around and call people tax evaders?” he asks. The second is the group that could pay but does not — and the problem there, in his reading, is not greed but the system. “Is there any justice in this country? If a small business gets an FBR notice, can it handle it? You need a plethora of lawyers to handle it.” For the large industrialist, he says, “we have an army of lawyers who keep getting stay orders. The common man, the small businessman — what will he do?”

This is the line that gives the episode its shape: “In my opinion, nobody in Pakistan wants to evade tax. Our system is encouraging tax evasion.” The FBR’s revenue-recognition mechanism, he tells Muzamil, has no connection to actual tax liability; whatever they pull out, they book as collection. “How can this be? My refund is sitting there.”

English as the real elite capture

Later in the conversation, Muzamil asks Shahzad why the Pakistani public’s relationship with money is so adversarial — why every wealthy person is presumed corrupt, why hope itself seems to have died. Shahzad’s answer reframes the elite-capture conversation in a way that is rare on Pakistani television.

“The biggest enemy of all this negativity is hope,” he says. “We have killed hope. In America, people see that an ordinary person has a chance. He can work hard, get into a good university.” Pakistan, in his reading, has done the opposite, and the deepest layer of that closure has nothing to do with money. “The real elite capture in Pakistan is the English language.”

He builds the case with specifics. A mathematical genius from a small town who does not speak English will not get into the top universities — because the entrance exams reserve half their marks for English. “Who are these people who speak English? Five to ten percent of the population. We are playing among ourselves.” He cites his own admission to LUMS in the second-ever batch, with a very low score in English and a very high score in maths. “I would not get in today. That cursed GMAT — fifty percent of the score is English. So what if I don’t have English? My work runs fine, and with this bloody chat-GPT, who needs English now?” The institutions, he notes, have not updated.

The wider point — and one Shahzad makes more than once in the episode — is that the wealth-creation engine of the country has been deliberately narrowed to a single thin slice. “Look at LUMS, look at Karachi Grammar School. Eighty percent of the people in multinationals in Karachi went to Karachi Grammar. Seventy percent of the people in Parliament went to one or two colleges. Nobody else can get in. This is the real elite capture.” The fix he keeps pointing at is unfashionable and slow: reform the public schools, make universities affordable, and stop subsidising electricity at the cost of education. “Subsidise education, not the electricity bill.”

The IPP villain

The conversation then turns to what Shahzad calls the most dangerous mass illusion in Pakistan: the narrative that Independent Power Producers are the reason electricity is expensive. As a former IPP sponsor, he has the standing to take the question apart.

He begins with the structure. “The IPP contract is very simple. The debt portion is decided by the government in the tariff.” The sponsor does not choose whether to be at fifty, seventy or eighty percent debt; the policy specifies it. The interest rate the sponsor can pay is capped — not floored — by the policy. The return on equity is set by the government in the 2002 and 2015 policies. Even the 1994 policy, which gave international sponsors better returns, did so because the government of the day did not yet have the understanding to define the contract more tightly. “These were government policies. The terms were predetermined by the government of Pakistan in the tariffs.”

He then makes Muzamil sit with the comparison that nobody draws. “Compare it with Nandipur. Nandipur’s cost overrun was three hundred percent. Who paid? You and I and the people of this country paid. The people who built it — nobody even knows who they are. Three governments changed and there is no mention. Neelum-Jhelum has shut down for the third time. Who is responsible? If this were an IPP, there would be a per-day penalty. It has shut down three times. Nobody is responsible.” His larger point is that the entire institutional weight of the country has been thrown at vilifying the one part of the power sector with a contract that actually has penalties and accountability written into it, while ignoring the part run by the state where overruns of three hundred percent are unaccounted for.

He goes further into the diagnosis. The real problem, he tells Muzamil, is not the IPP returns; it is debt tenor. “The debt is only ten years. If we put it on a twenty-five-year tenor, the loan repayment spreads out and thirty to forty percent of the entire crisis ends right there.” The next problem is that the government has not paid IPPs on time. “When you don’t pay the first one on time, the second one demands a higher return. When you don’t pay the second, the third stays away. Today no government in Pakistan can put up an IPP at all. So your choices are Nandipur and Neelum-Jhelum.”

And he is direct on the social-media noise. “The other day I saw a tweet — there was an unfortunate road accident in Karachi where a woman, driving recklessly, killed some people. The tweet was that her husband is an IPP owner. The man who tweeted is highly educated, I know him. I am more astonished — now reckless driving is the IPP’s fault?”

What he would actually do

Muzamil asks for the operator’s version of a reform plan. Shahzad gives it without notes, in priority order.

Step one is to determine the country’s real power production capacity. “The forty thousand megawatts number is misleading,” he says. Solar plant factor is twenty percent, hydel around thirty, wind around thirty-five. The true summer-time deliverable capacity, he estimates, is twenty-three to twenty-four thousand megawatts. Fix transmission so that capacity actually reaches the load centre — at one point, he notes, twenty-five hundred to four thousand megawatts have been stranded because transmission lines were not built on time.

Step two is to price electricity so people actually use it, not so the bill collapses demand.

Step three is to publish line losses and recovery losses, by Disco, every single month in the newspaper. “Tell Pakistanis that electricity is not expensive because of the IPP. It is expensive because of non-recovery. It is expensive because of transmission. Then you will create pressure where the pressure should be created.”

Step four is to restructure power-sector debt — extend the tenor, distribute the loan repayment over the remaining contract life, accept rupee financing if dollar financing is not available, and stop loading the consumer with a payment schedule the consumer cannot carry.

Step five — and one Muzamil clearly likes — is to get the power sector out of the subsidy business entirely. “Today the bill arrives. A five-hundred-unit consumer pays one tariff, a two-hundred-unit consumer pays another. If the government wants to subsidise, put the subsidy directly into the bill. Don’t let the power sector under-collect, then chase the subsidy through eight months of budget approvals. Their entire cash flow goes out of sync. What is the power sector’s connection to the government’s subsidy policy?”

On the broader macro, his recipe is consistent with his diagnosis. Bring the policy rate down — a five percentage-point cut on the nine-trillion-rupee interest cost alone releases three trillion of fiscal space. Pause the PSDP for two years and instruct the prime minister to publicly cut government’s own expenditure by fifty percent. Reform pensions ourselves rather than waiting for the IMF to demand it. Renegotiate hard with China and Saudi Arabia, the two main bilateral lenders, on the basis of an actual master plan rather than a quarter-by-quarter scramble. “If the cost of the IMF’s prescription is to kill the entire industry of Pakistan rather than to reduce interest rates, we might as well negotiate tough with them.”

Privatisation, PIA, and the 1992 lesson

Throughout, Shahzad keeps returning to a single year. “In 1992 we told the world we are privatising. In one day we privatised thirty industries. I remember the bidding — we were sitting in tents at the privatisation commission and in one day, thirty companies were bid out. It was a landmark moment.” That episode, he argues, is what created the second-order opportunity for an entire generation of bankers, industrialists and entrepreneurs who would never previously have been able to access credit.

His read on what went wrong afterwards is in keeping with the rest of his framing. “The answer is one line. It is the common man’s welfare. Give him a cheap motor so that he reduces his bill, no, just give him money. Doing the common man’s welfare like this is exactly how we have broken his back first.” Privatisation got tagged with the accusation that the assets were sold too cheap. Steel mill and PIA show what happens when the state then holds on. “There is nothing wrong with the staff of PIA. It cannot run in the public sector. I get up in the morning and buy a billion rupees of cotton for my listed company. If I were in the public sector I would have to fill six forms. You cannot run a commodity business that way. You cannot run an airline that way. Every thirty days the management changes.”

Muzamil pushes on whether the state has the capacity to reform itself. Shahzad’s answer is part lament, part instruction. “You need people who are a little less angry. The whole society is so angry, ready to fight. Pick someone who is a little less angry. If you start with a negative mindset this problem will not be solved. You need a little belief that it can be done. I am very positive — this is not a difficult job. It is actually an easy job. You just need the right people.”

The textile question, and what is actually different from Bangladesh

Later in the discussion, Muzamil asks the question every Pakistani business journalist has asked for a decade: why has textile export not grown, particularly when Bangladesh has?

Shahzad’s answer reframes the comparison. “Bangladesh is basically a stitching shop. They import the fabric and just make a trouser out of it. Pakistan is different — ten years ago our number one export was cotton yarn. Now all of that yarn has converted into weaving, weaving has converted into processing.” The reason headline exports have not grown, in other words, is partly that Pakistan has moved up the value chain and is consuming more of its own intermediate product. He frames this as good news, not bad — and then lists the cost-structure problems that are still very real: minimum wages set province by province in an eighty-page gazette, dollar-equivalent labour costs that are now higher than Bangladesh, electricity tariffs that are the most expensive in the region, and a rebate system where some announced rebates have been pending for ten years.

His ask is for predictability rather than handouts. “Make a five-year policy. Link it if you want — link it to international fuel prices. Just give some vision. If you have announced a rebate, give it. The government changed and Parliament started a discussion that the previous tax credit was a fraud. What nonsensical discussion is this? You told people to import equipment and put up factories. That was a loan, the bank took the commercial risk. There is so much anti-business sentiment in this country that working here is not easy — and that is itself a risk factor.”

The risk factor, he then translates into return required. “How do you determine return on equity? Risk-free rate plus the risk. The risk-free rate in Pakistan is nineteen percent. Now add the risk of NAB, the accountability bureau, Parliament, anti-corruption, politics. Required return keeps climbing. Reduce the risk and the return on equity comes down.” This is the line that connects his entire argument: high interest rates and high political risk together make it impossible for productive capital to clear, and the absence of productive capital then becomes the excuse for the next round of suppression.

The crowd, the cuckoo land, and what he is still trying to do

Towards the end of the episode, Shahzad is direct about the limits of a podcast conversation. “You and I are talking on this podcast. Fifty thousand people will watch. Forty-nine thousand of them will say he is lying. I am not trying to convince anyone. My friends sit down for dinner and tell me, you people ate the money, you did this. I tell them, fine, leave it, no problem.” His point is that until a counter-lobby of people willing to tell the truth in public is built, and until the state itself stands behind that lobby, the price-earnings ratio of Pakistani equity — his shorthand for the cost of capital — will keep heading toward minus one rather than thirty.

He is more candid than most CEOs would be on a Pakistani podcast about what the alternative looks like. “We are happy to take a calculated default — a structured default — if the cost of the IMF’s prescription is to kill the entire industry. Germany defaulted after the Second World War. Argentina has defaulted six times. Brazil has defaulted. We can do it too. The issue is that we don’t have that level of capability — we cannot even talk to them, and we are so afraid that god knows what will happen.” His view of the actual conversation is harsher: “We are sitting in cuckoo land. If we stay in cuckoo land, this is how it will be.”

Muzamil closes near the one-hour-ten-minute mark, asking where this all goes. Shahzad does not predict. He repeats his core instruction, which is the through-line of the whole conversation. Cut the rate. Restructure the debt — domestic and external — into honest tenors. Cut government expenditure rather than chasing tax-to-GDP up an impossible hill. Get the state to defend its own contracts publicly so that capital can come back in. Reform the public schools so the ninety percent can compete. Stop villainising the people who put real money on the table. “Give people a fighting chance on their effort and their logic skills, and the public’s momentum will change.”

It is, in the end, the most operator-style argument an industrialist can make. The numbers do not work because the policy mix is internally contradictory. Hope has been killed because the institutions were designed to kill it. Both can be fixed. Neither is being fixed. And the cost of pretending otherwise is being paid, every week, by the businesses that are quietly going into the irreversible decline Shahzad describes in the opening minute and never stops describing for the next sixty.