Reading the Economy: July 24–31

The remittance story nobody quite told

Record remittances hit $41.6 billion in FY26. That’s nearly double what came seven years earlier. Meanwhile, merchandise exports? They barely budged. Still stuck in the same narrow range, year after year. So, Pakistan got a current-account deficit of $139 million anyway. Let that sink in — a record inflow, and the external account still went negative.

Business Recorder’s editorial caught it. One op-ed in the same paper nailed the mechanism better: Pakistan has allowed remittances to do the work that exports should be doing. Remittances are the result of exporting productive labor while productive capacity and productivity is not improving. In reality, remittances have not created external resilience but helped postpone reform that for investment for more productive investment.

Here’s what didn’t happen: no story connected the remittance story to graduate unemployment, documented byHaque and Nayab. If firms at home can’t absorb educated workers, then remittances aren’t “external-sector strength.” They’re proof that Pakistani graduates and skilled labor are more employable in Riyadh or Dubai than in Pakistan. That’s not a resilience story. It’s an indictment. The journalism filed three separate stories when it was really one story all along.

FDI

Foreign capital kept moving through the week, though not toward anything productive. Pakistan actually paid out more to existing foreign investors than it pulled in fresh FDI during FY26, a fact Business Recorder reported clearly but nobody really interrogated. The distinction that matters, and that most outlets newspapers entirely, is between portfolio purchases of government securities and capital flowing into factories, technology, or exports. Treasury bills finance the state’s budget. They tell you nothing about confidence in the productive economy. Mixing them together is how government spin becomes economic news.

Bank Lending

Profit did better work here, reporting that banks borrowed Rs5.9 trillion from depositors in FY26, up from Rs5.4 trillion the year before, while private-sector credit is expected to shrink from Rs1.4 trillion. Banks chose government paper because it’s safer and better-paying; SMEs got squeezed. This isn’t new. PIDE’s regulatory work described exactly this crowding-out pattern years ago.

As of March 2026, private-sector lending represented just 22 percent of banking assets. India’s ratio sits around 50 percent; Bangladesh manages 40 percent. Pakistani banks are running record leverage while channeling almost everything into government debt, and the advance-to-deposit ratio has hit one of the weakest readings in the region. When a newspaper reports “private credit growth” or “expanding bank risk appetite” without setting it against this structural reality, it’s letting officials’ language substitute for actual analysis.

Cotton: sectoral journalism, almost

Dawn got closest to real investigation with cotton. Output collapsed from 14 million bales to 6.85 million. The story connected it to import costs, lost export earnings, delayed decisions. That’s real sectoral reporting. But it leaned on OICCI’s frame. A stronger piece would have weighed competing explanations. Seed quality matters. Research-system failure matters. Water constraints. Support-price distortions. Pesticide availability. Provincial extension systems that don’t function. The political economy of sugar out-competing cotton for acreage and subsidy.

A crop loses more than half its output in a decade. That’s not weather. It’s institutional failure accumulated year on year. Deserves the same scrutiny as any governance collapse.

The MDR relaxation and another gift to banks

The minimum deposit rate floor got narrower, not removed. As of August 1, it applies only to accounts under Rs10 million. Everything above that? Trusts, companies, affluent individuals — they lost the guaranteed return. Banks are expected to pocket an estimated Rs20–45 billion annually from the repricing.

It was announced that this was done to compensate banks for the scrapped remittance-subsidy scheme which the government paid banks to bring in foreign remittances. Economists, including myself, had criticized it for years as unjustified. Banks were being paid to do what. Removing it made sense. So there was no need to give banks extra compensation--letting them cut returns on deposits above the Rs10 million threshold. No newspaper asked the obvious question: why did ending an unjustified subsidy require creating another one? Nor did anyone linked the public views of leading economists with this development..

Diplomacy as press release

UK trade coverage reproduced the press release. Both governments agreed to “strengthen engagement.” The high commissioner praised reforms. The story ended. No review of past trade commitments made and abandoned. No named barriers. No deadlines. No success metrics. The press release supplied the entire narrative, fact and interpretation both.

The op-eds: scepticism within silos

Opinion pages were better. More questioning than news pages. But fragmented.

Business Recorder warned that “external calm is more fragile than it appears.” Correct. That near-balanced current account rests on remittances and suppressed demand, not strength. The News ran “Migration by design,” linking migration to poverty and absent opportunity. That’s one step away from my brain-drain argument.

“Rethinking trade policy” in Dawn rejected export targets. But it stopped before connecting trade failure to energy pricing, customs, taxation, regulatory sludge — the permission economy that explains why commerce policy alone can’t fix exports. A Business Recorder piece on government mandates made the sharpest point of the week: which tier should do what? But it didn’t finish the thought. Reshuffling functions between provincial bureaucracies isn’t decentralization to citizens. Local government remains hollow, both fiscally and politically.

“Peacemaking with shopkeepers” challenged the latest traders’ tax scheme. Useful. But missed that “undocumented” commerce is increasingly mythical. Electricity, banking, property, supply chains — most retail activity is already visible. The problem isn’t invisibility. It’s political selectivity and distrust. But more importantly, it is the state of a disorganized market suffering from government predatory practices—volatile and grabbing--that operate like a tax on them which erodes trust and growth. Rather than taking the time to work with them to develop the market and stop predatory taxes the government wants to tax them further. This point has repeatedly been made in research, but columnists seem not to be aware.

Two columnists, one missing argument

Two Dawn columnists argued past each other without acknowledging it. Ishrat Husain was cautiously optimistic — external goodwill and Saudi deposits could convert into productive investment if the state managed capital flows carefully. Khurram Husain was openly sceptical, pointing out that Pakistan has repeatedly mistaken inflows, deposits, and geopolitical rents for genuine economic recovery. Both had something right. Neither identified what inflows have been used for decades: the postponement of reform.

That’s the real story. Dollars don’t fail to produce growth because there aren’t enough of them. They fail because they allow predatory governance to avoid changing itself. External money — Saudi deposits, IMF rollovers, remittances, geopolitical rents — lets the government keep doing what it’s already doing: paying civil-service perks, allocating plots and PSDP projects to the connected, offering protocol privileges to the well-placed, selling regulatory discretion to those with access. The state remains unthinking and uninformed. It sits on decades of domestic research — PIDE’s 5 year old work on the permission economy, the regulatory audit findings, the institutional analyses of why markets don’t function — and ignores it all because the incentive structure rewards extraction, not learning.

Investment doesn’t materialize in this environment because private investors need predictability, rule of law, and competitive markets. What they actually encounter is negotiation with officials whose incentive is personal benefit, not economic growth. A factory owner watches the government allocate a plot to a VIP’s nephew instead of to competitive bidding. A trader watches customs officials extract bribes because the tariff system is deliberately complex. An exporter watches tax authorities harass productive firms while letting connected smugglers operate. Why invest?

External money masks all of this. It allows the government to postpone the decision to reform its own structure. The cycle repeats: inflow arrives, celebration follows, consumption expands, imports surge, reserves pressure builds, exchange rate crashes, next crisis hits. Then the government goes cap in hand again. And the private sector, watching this pattern year after year, sees no reason to invest in manufacturing, exports, or long-term productive capacity.

Growth only happens if capital enters competitive markets, transparent allocation mechanisms, and cities capable of absorbing productive labor. Otherwise, the money is just a postponement — a way for predatory governance to survive another budget cycle without reforming itself.

The pattern

Five stories. Remittances. Portfolio flows. Private credit. Cotton. Skills. Each one reflects the same underlying condition. An economy where the state borrows first. Where everything else gets crowded out. Where labor exits because firms can’t absorb it. Where domestic research documenting underlying causes, sits on shelves, goes uncited.