Pakistan's enduring Ponzi scheme, a quarter-century-long financial con, has finally shown signs of an exit, but it's a fragile one. The country's budget has been in a constant state of loss, with spending surpassing earnings, and interest payments being funded by borrowing more money. This Ponzi finance model has been a burden, with the debt-to-GDP ratio rising annually. However, recent improvements indicate a genuine attempt to exit this scheme. The key question is whether this exit is sustainable and what is holding it up.
The author argues that the exit is primarily financial, not institutional. Pakistan's economy has been propped up by external factors, such as the International Monetary Fund program and the National Economic Council's frozen provincial development. These external programs have provided discipline and restraint, but they are not owned by the country's institutions. The author emphasizes that the gains are reversible, as they are enforced by programs with expiration dates, not by a robust institutional architecture.
The budget's surpluses, falling interest burden, and shrinking State Bank dividend are positive signs. However, the author warns that these gains can be reversed quickly if the country's rulers prioritize extraction over growth. The author highlights the broken architecture of the country's institutions, where the federation and provinces are locked in a formula that neither will reopen, and the elite bargain remains unstruck. The author concludes that the exit from the Ponzi scheme will only come when prudence and national economic growth interest the country's rulers more than its convenient alternatives, and when some tier of the state becomes the residual claimant of its own choices.
