Goals for the incoming government: Tell us where all our money has gone

Published: May 9, 2013

A public education system is practically nonexistent, and I can’t help but think that we have almost lost an entire generation of very capable workers. PHOTO: REUTERS

The last five years have only strengthened my position that although sound economic policy may not be the answer to all our problems, mishandling issues of public debt has the potential to break the fragile sovereignty that Pakistan stands on.

I often hear about roti, kapra, makaan (food, clothing, shelter) and the plight of the vast majority of Pakistanis; the end of the energy crisis, reducing the national debt, handling the law and order situation, and tackling the double-digit inflation rate. These are all necessary steps to sustain us into the future, and I commend anyone in public office who dedicates their work to achieving these.

However, as I read through transcripts of speeches and manifestos, and collate my personal discussions with veteran politicians, I have a deep, sullen panic over this nagging idea that our political candidates don’t quite grasp the gravity of our public debt situation, and how intricately linked our public spending is with our national welfare.

Let me revisit three figures we come across every day:

1. The State Bank of Pakistan holds about $6.6b in foreign reserves, and this figure continues to drop every quarter.

2. The rupee has halved in value in the last five years.

3.  Pakistan’s external debt grew from $34b in 2006 to over $66b in 2012.

In my line of work, I completely understand the need for access to capital markets, and debt financing of investment projects in infrastructure and workforce productivity. In fact, I encourage it. But the key words here are investment, infrastructure, and productivity.

This is what worries me. We borrowed a lot of money, we spent a lot of money, and we can’t seem to account for much of it.

What we have, however, is a peculiar state of regress. Pakistan’s capital base is shrinking: there is virtually no foreign investment, and local capital is fleeing abroad. We have a deepening energy crisis, with oil and gas being bought with unjustified premiums to keep the country supplied. There is no new logistics or energy infrastructure, new rail or pipelines. Most critically, a public education system is practically nonexistent, and I can’t help but think that we have almost lost an entire generation of very capable workers.

I don’t know what our excuse is. Besides the costs of flood relief and fighting militia, there have been no major drains on public spending in the last five years.

So it begs the question, where has the money gone?

Over the next five years, any new administration will face severe challenges in tackling waste and inefficiencies in public spending, and recovering faith and optimism in the economy. I don’t have the answers to what we should hope to accomplish, but these few pointers will go a long way:

Enforce a tax base:

0.57% of Pakistanis paid income tax last year, including less than 30% of parliamentarians. No public function in the country can go on until a tax base is enforced.

Cut the fat:

We don’t need 53 cabinet ministers, or the hundreds of federal and provincial state officials. They complicate the workings of government and the flow of public funds, and we cannot justify their costs against the formation of local bodies of government.

 Clean up:

Military operations and a brief state of emergency are a small price to pay for national security from militant elements. Let’s start with protecting our own population, and we can then work on providing protection to prospective foreign investment and business interests.

Privatise rail licenses:

Keeping rail operations under national management could only be justified if it were contributing to the public revenue base, which it is not. It is costing us billions every year to keep operational, and the treasury could use the added liquidity from the sale of rail licenses.


Pakistan has yet to go through large-scale public development, and Pakistani markets are still immature and imperfect. Pakistan is a lucrative opportunity for capital investment, for both domestic and foreign investors. Let’s start with protecting and subsidising private investment into energy production, agriculture technology, and public infrastructure, and see where the spirit of smart, regulated and inclusive capitalism takes us.

Plug the holes:

Looking the other way on permit scandals and kickbacks may keep parliament and senate from undermining the existence of government, but we are losing an important national asset very quickly: our capital base.

I don’t think it is ever too late to salvage a situation. I do, however, strongly believe that time and the status quo are not on our side. We have enough problems; we don’t need to add bank runs and hyperinflation to our list of challenges.

So I say to our political candidates, enough rhetoric. What is our plan?

Follow Haider on Twitter @HaiderAShah

Haider Ali Shah

Haider Ali Shah

A Private Equity manager specialising in international capital. He lives in London and tweets @HaiderAShah

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.

  • The one who care

    a good informational read, Very well presented ! Recommend

  • Imad Uddin

    Wow so many constructive blogs on et!
    You have easily explained something very imp. It should be published in the newspaper as well! U clearly conceive what you wrote. However, I do not agree with ur idea of privatising the railway. Unlike ptcl which has competetion, it will turn into monopoly. Unlike kesc it does not have a properly integrated network, a private owner will have less incentive to take trains to places where there is less profit but is important for the convinience of people. Moreover, these losses are due to ineffeciency and curroption, and can be reduced if intended. Lastly, privatising right now is worthless- what price will it fetch?Recommend

  • Haider

    @Imad Uddin: Imad, thank you for the encouraging comments! I actually agree with you on the railways sale recommendation, and I will explain why we are on the same side of the debate in my next article. Indian Railways is a great example of how reforms can do wonders, even under government ownership.

    If you get some time, read up on how the British rail network has been operating in recent years. I will focus on this in my next piece.Recommend

  • Mehdi

    This is a good blog. Full of introspection. This blog won’t sell like hot cakes like the ones for IK. how do an elected govt measure its good governance? What are the key performance indicator?Recommend

  • Iftikhar Shah

    Very incisive analysis of our economic meltdown and our precarious position. However, I believe that national assets like Railway, PIA and PTCL etc. should not be privatized, instead they should be better managed. If the prospective buyer is expected to make a profit from their ownership, what stops the national government to manage better and do the same?

    As for generation of any wealth to help national exchequer in the short run, no one sells the family silver to dine out! We must learn to live according to our national income and resources.

    These national assets have a strategic dimension as well as carry a kind of national esteem, and private owners don’t have the motives a national government is expected to have about their existence, operations and profit/loss calculus.

    The real problem in Pakistan is that the ruling politicians/law makers who are expected to make and enforce laws and rules regarding taxes and good governance, have NO motivation to do so; why would they cut their own wealth supply, even though through the dirty and corrupt routes.

    So, what should be the first step? An honest dictator?

    A new civilian politician? may be. Imran Khan may be a hope

    Then is the God Almighty. HE has his own schemes and timetable for various peoples and nations. Lets see what is in store for Pakistan.Recommend

  • Honey SINGH

    This in really informational Dissection of the economy of Pakistan. This should open our eyes and should help us to Vote for the Right leader at this Crucial point of Time. This is the change that we are looking for making a NAYA PAKISTAN.

    Keep it up!!!Recommend

  • Imad Uddin

    ur this blog is an inspiration for me. The way you explained a specific issue to a general reader. Our newspapers are filled with “instant analysis” which is not usually highquality. There is so much scope for such pieces which spread awareness to a general (educated) reader about specific issues our country is faced with. Many of our anchors on tv dont kno what exactly is Kalabagh dam when they are conducting a program on it!
    Our collective knowledge and understanding of issues would increase if we get out of the temptation of “instant analysis” a huge part of which turns out to be garbage.
    will surely like to read about british railway :)Recommend

  • Wow

    The tax base is 1%, how is it your money ? Get a clueRecommend

  • Taazeen Shah

    A good analysis of our economic and political situation and a food for thought – both for the Voters and the Leaders to be.

    In a couple of days, we shall see if our people are capable of electing a reasonably well-groomed and efficient leadership comparable to normal democracies, and can such a leadership deliver. More than the leaders, it is at test for our people. They are the one who should be asking their leaders “tell us where all this money has gone?”Recommend

  • http://www.twitter.com/haiderashah Haider

    @Mehdi: Given where Pakistan is, I measure good governance in change: a strengthening economy, revisiting education and social sustainability, healthier foreign relations (trade treaties, moving defence budget towards internal development), national security, etc.

    But merely the prospect of a PTI stronghold (dare I say, sweeping victory?) does not excite me. The challenges are immense, and in this article, I only strive to highlight how important strong capital controls are, especially after the way the last five years were managed.

    I enjoy the Imran Khan hype. It sparks popular activism, and it will run its course. I only hope that when the new government is formed, these discussions are at least equally as important.

    Imran Khan has all the personal potential to be Pakistan’s Erdogan, and there is strong intellect backing his political leadership. Plus, the charge we see in the population seems more singular than it has been in the past. These are hopeful conditions.

    What we cannot have is a population reverting back to a lukewarm conversation over the issues, and letting political quibbling take the main stage. I fear the workings of a coalition, and the role of the opposition in the next five years. If Imran Khan is up to the challenge, we must keep his administration honest, grounded & accountable. I worry that the hype is for the celebrity, and not for an active involvement in the way this country is run. Recommend

  • Parvez

    Your write up is knowledgeable and well presented. What you say and suggest is known to many. What is not known is how to infuse honesty and professionalism into a system that is engineered and thrives on personal greed.
    Corruption is a human failing ( found everywhere ) it can not be taken out of the human but it can be controlled by rules, laws and systems. The Catch-22 is, when those supposed to make these rules, laws and systems are themselves beneficiaries of the corrupt system, why would they change it.

  • majid

    interesting read and well done for writing something backed up by facts. The proposals in progression are there, but in my opinion there needs to be a system that is in place that works and everything needs to be regulated. Look at UK, there is a system here that works, if anything is abused or broken, they ensure it is corrected and inquiries are conducted by Lords. Pakistanis living abroad are reluctant to invest in Pakistan. They’re not confident in the system that is in place there – because their money will just go….disappear or will not get back the value they expected.Recommend

  • Imad Uddin

    come on yar, whoever preesses that “allow” button!
    @Haider,it wud b great if u keep posting such informative and constructive blogs. Wud surely read about british railway :)Recommend

  • M

    Haider, thank you for this extremely informative article- I think it should be published more widely. Also, if we get a Naya Pakistan, one where brains like yours are truly appreciated then Pakistan could do with you coming back :) All the best.Recommend

  • Sabeel Ahmad

    Well, the article indeed is well written and well argued.

    But the way forward needs to be further explored and planned in the coming series of articles – We need “A national Framework for Economic Revival of Pakistan” that would pave the way for our national revival.


  • Sabeel Ahmad

    Such young leaders must come back and take charge of the national affairs. Enough of the old incompetent and corrupt leadership!Recommend

  • Mehdi

    sir very well said. I concur with all your explanation that you have provided.Recommend

  • Tam Shah

    Great article, but it doesn’t create too much hope. Too many Pakistanis have sold their souls to agendas other than the development of Pakistan. How is one politician to change things when what we lack is the moral training and ethics education of the entire nation? How can we create accountable institutions when everyone in them lacks self-accountability?

    We might have to wait out till the demise of the current generation in order to see any change at all, hoping that the next one grows up with better values.

    And elections aren’t going to work for Pakistan, ever. Not with the current rate of literacy and awareness, at least. I have inside information that entire villages are being bought by PPP and PML-N with the zillions they have plundered. I personally know a few families that have pledged their votes against a grant of 20,000 per household.

    For change to take place and bring about a Naya Pakistan, at the very least we need voters who recognize where the instruments of change lie. Not voters who sell their votes. Our pseudo democracy and illiteracy are chasing each other in a vicious circle, or rather, downward spiral. Bad democracies create lack of education, and lack of education brings in another bad democracy.

    Imran Khan is in the hospital, and the thugs are in the play ground. God help us, as the votes start to be counted now….Recommend

  • http://www.twitter.com/haiderashah Haider

    Thank you for the lovely comments. Yes, I will address other areas of economic reform in subsequent articles, particularly the role of capital in the recovery of KP.

    It will take generations of smart, modern education to empower a population capable of understanding what it needs.

    But as we stand today, the vast majority of the population doesn’t seem to understand its own situation. The urban educated will have to take the lead on policy debate and popularising the issues.

    Look across the border. The two main political parties in India have both run administrations rife with corruption and self-serving agendas. But they haven’t put national interest second to their own.

    Manmohan Singh’s tenure as finance minister was the single most important factor contributing to India’s economic health today. His capital control policies were deemed risky and were unpopular at the time, but they stand as lessons to almost any developing economy. The results were immense: he took helm in the middle of a crisis with foreign reserves at about $1 billion, enough to pay for a few weeks of imports. They stand at close to $300 billion today, with a powerhouse of an internal economy.

    We tried similar policies and they worked for us under Musharraf and Shaukat Aziz.

    And I would have expected the same from Imran Khan’s administration.

    It is a pity that (historically) the two largest political parties in Pakistan have sidelined the importance of capital control to this extent. The last five years were disastrous to health of the country, and another five years of this very odd socialist public policy footed by administrations of landowners and businessmen has the potential to take Pakistan into the ground.

    But we reelect them, over and over again. It will take years of education, against what these parties stand for, to break these emotional ties with the Bhutto and Muslim League brands. Recommend

  • http://www.twitter.com/haiderashah Haider

    @Sabeel Ahmad and @M:

    Thank you, I am truly humbled.

    I will strive to develop within my own resolve and understanding before taking on responsibility for public thought. Recommend

  • http://www.twitter.com/haiderashah Haider

    @Tam Shah, @Iftikhar Shah, @Parvez:

    I agree.

    I had a talk with an old mutual friend of Imran Khan from his days in England, and I think it is the best discussion I’ve had on democracy in Pakistan.

    I will summarise:

    Imran has the thought down just right. But it isn’t revolutionary. It is exactly what the educated population of Pakistan is thinking. This is the population which matters. This is the population which will decide on matters of business, economy, foreign relations, defence, national security, education and the future of the country. This is the population capable of making a difference. But this is not the population who decides elections. Imran Khan will not win these elections.

    But Imran Khan has given this population a voice.

    This will carry on for many more years. The military is important. Kayani may be a lame duck, but the military is a passionate institution. Imran Khan needs to make friends with the military, and play this with the educated people of Pakistan to put together a strong, constructive opposition. Pakistan needs to capitalise on the public’s interest and support of Imran Khan, and make this opposition as public and as relevant as the government itself.

    The opposition will have to lead the movement for election and constituency reforms.

    Then give the parliament about two years to disintegrate on its own.

    And maybe, just maybe, we might be able to get this right the next time around. Recommend

  • C

    this is a very well thought pieceRecommend

  • Zee

    Nicely written…my thoughts exactly just couldnt get myself to write a blog..and I admire you being in PE having the time to blog. Hats off to you.
    I share more or less the same profession here in US, investment analysis, however no time.
    Anyways I am a huge supporter of Free Market Capitalism, but Pakistani economy is not totally fit for it right now. Premature for that kind of thing. Hence another source of revenue generation can be from institutions like PIA, Railways, KESC WAPDA etc. PTCL (well thats gone).
    The most important aspect is generating revenue, the tax base needs to be expanded, even if that means lowering the tax rate by a few hundred basis points, I am all up for that. This 0.57% needs to go up dramatically. But I dont see how thats possible with the feudals and influential parties not only evading taxes but not paying their utilities.
    This system needs an overhaul. Hope that happens. But I dont have my hopes up too high with the N League in power.

    Nice artile thoughRecommend

  • http://blogs.tribune.com.pk/author/1534/haider-ali-shah/ Haider

    @Zee: Thank you very much! I have a bit of time on my hands between projects, and I am trying to make the best use of it.

    I don’t have too much hope for N League either. Ishaq Dar and Sartaj Aziz yoyo-ed between capitalist and socialist frameworks in a 2-year period around the nuclear tests, and Dar is pinned to be the Finance Minister again under Sharif’s premiership. I keep an open mind on socialist agenda, but only after major tax reforms as you rightly said.

    PIA and KESC/WAPDA, I will concede. Energy & grid networks are tricky, and Pakistani energy infrastructure is too immature and fragile to be run effectively in the peoples’ interest under private ownership. Regulation can be overhauled relatively quickly, but infrastructure cannot. Also, PIA isn’t a lost cause at all. I have written on this in detail, and I will point you to my other pieces if you’re interested.

    Regarding the Railway, however, I stand by my argument. I have to be clear- I don’t recommend selling the rail network. Not at all. The privatization of British Rail worked, but it won’t work in Pakistan. Capitalist interest is still immature and weak against old the feudal stronghold- privatizing the rail will be worse than the Steel Mills fiasco.

    I only suggest selling 5-year operating licenses to the private sector to take over passenger operations on specific lines. This should probably also include termini.

    This is merely an overhaul of incentives, but I believe there is scope for success if executed right. A well managed rail network, especially with the population demographics of Pakistan, should form the core of national transport. It has the potential to be extremely lucrative for private operators, which in turn means private operators will spend on developing capacity and quality for passenger operations over time, as well as pushing the government to invest in rail expansion and overhaul of the base network. Smart rail operators won’t take this as an opportunity to monopolize. They will go up against air and road travel. There is no long term profitability in monopolizing the rail, and the government has made itself an example of this.

    The only role of the government would be to smartly regulate passenger operations to protect rail users, conduct smart overhauls to be able to command maximum licensing fees, and to pledge a large chunk of this revenue to development of base rail infrastructure. It wouldn’t be very difficult to work minimum annual capacity conditions into the licensing fees, and I am sure we can take some time and come up with a framework to protect the population from overpaying for substandard service.

    I accept that execution has to be clean, and the procedure has to be looked after with ethics and integrity. Does anyone remember Hamid Gul’s Varan buses in Rawalpindi & Islamabad? Not again.

    We may head down this road at some point in the next decade. I don’t put it past our governments- there are always panicked jumps back and forth between one mismanaged policy framework and another. And as of lately, most political leaders seem to have significant business interest in transport infrastructure themselves. Tricky, I understand.

    If we get this right, the private operators and government rail network would want to regulate each other, as their profitability depends on it. Even if officials continue to skim off the revenues, there will be an incentive for profitability for everyone. Eliminating corruption is a social challenge, not particularly an economic one. I know it angers us all, but I am just being pragmatic by asking you to consider politicians as silent shareholders who just receive dividends. They will destroy the country if they don’t get their bone. This is just the price we pay for harboring and nurturing the feudal system.

    So, more profitability -> more investment -> better rail operations -> more tax revenue (more money for some to buy chateaus with) -> more incentives to invest -> more profitability and so forth. Maybe one day we will clean up a lot of the corruption with strong tax reforms and cut off our waderas from the national treasury. Maybe we won’t. But this has the potential to be a situation where smart, private capital goes up against old feudal money.

    Which is why I look forward to how PTI will evolve in the next few years. They’re light on old political and feudal interest, and quite heavy on new private money waiting to support the right policies. If we do ever get there, I, for one, will be working on license bids for a number of investors, and I know what sort of base infrastructure indicators and reforms I will be looking for.Recommend

  • Zee

    one more thing.
    This is point 6 and comes before I thought about outsourcing the whole country.

    6. Have a technocrat government. The education minister should be from that discipline and the health minister should be from Health. Similarly Economic minister should be an economist.

    Jeez, now I go more strongly for the outsourcing part, since that is also not happening. lolRecommend

  • http://blogs.tribune.com.pk/author/1534/haider-ali-shah/ Haider

    @Zee: I agree on technocrats running more departments. Reminds me of Shaukat Aziz.

    Would you please go into detail on the mention of outsourcing? Is there another part to your comment which hasn’t been posted yet?Recommend

  • Zee

    They never posted my full comment. Moderators thats not good. If I am not mistaken I never wrote anything bad against any party or any religion or anything.

    I just gave my 5 point agenda, which if the government does I am pretty sure our country would be on the path to prosperity. However it will take time at least a decade.

    Now that was a long piece I wrote. I dont know why they didnt post it here.

    However the outsourcing was the 6th point, sarcastic one. Lol I said if all fails just outsource the whole country to the british or the chinese and our development will come itself.

    the other points in a nutshell were.

    1. Get rid of feudalism
    2. Increase spending on education and health care. Decrease on defense.
    3. Get rid of the terrorism, by having a strong stance towards war on terror and also get out of kashmir
    4. Make police strong and honest, overhaul the whole system. Judiciary should be separete from the executive branch.
    5. I forgot what I wrote.Recommend

  • http://www.twitter.com/haiderashah Haider

    Moderators, please go through that comment again and reconsider approving.


    That’s hysterical! I am sure they’d do a better job than our politicians, and they’d be much cheaper.

    Feel free to get in touch on Twitter. I will point you over to other pieces on PIA, Railways etc.

    I’ve always been a proponent of relative demilitarization. It will take a few years, but it is imperative that we have strong internationally-backed peace treaties with India, and both countries have protection from UN and NATO treaties over any possible future water dispute. Kashmir also needs to be settled. Split it in the middle if need be. We’ve done the Radcliffe line, we can do a little more.

    After that, a smarter, smaller budget to maintain a ready self-defense force would be enough, and a lot of that needs to be used to clean militant elements within the country. We aren’t the only country who needs to spend on health and education; the Indian population is suffering too.

    Tackling feudalism and police corruption will both require considerable strengthening of the educated classes. The vast majority of the population is too weak to go up against these strongholds unless it is united, and the election-related events of the weekend show us how strong feudal ties lie within Pakistani society.

    This will be a long struggle. It will be about winning over person after person to the educated, enlightened and empowered attitude that we decide our own future. Politicians, religion and tradition need to play smaller roles.Recommend

  • http://www.twitter.com/haiderashah Haider


    Also, any thoughts on selling rail operating licenses?Recommend

  • Sam Shabbir

    Very well article Haider. I hope to read more of such articles in the near future.Recommend