Wrong door, right agenda—II

A response to Dr Nadeem ul Haque’s “Who built the field?” and “The saver pays” — concluding part

Part-I of this response tested the claim beneath Dr Nadeem ul Haque’s two recent columns — that bankers built the field they play on — against the statute that bars serving bankers from the State Bank’s board, the register that shows three commercial bankers at the finance helm in seventy-nine years, and his own credit series; it then re-examined the 2024 lending levy, the saver’s lot and the protections item by item.

The verdict was presence, not capture. This concluding part takes up what remains — the alternatives and the agenda worth agreeing on — and ends at the right door.

London, conceded and returned

Dr Haque rejects my Bank of England comparison on the ground that gilts are broadly held, so bank carry there is a side business. Quite so — they are held by pension funds and insurers whose assets exceed Britain’s GDP, while ours remain under one percent of it. The breadth of the holder base follows the savings architecture, and that architecture is written by the SECP, the tax code and the Ministry of Finance, not by a bank’s credit committee. Build those pools and the sovereign’s paper will spread here too.

The alternatives’ own ledger

The weakness of the alternatives cannot be charged to the banks or to the State Bank. The investment banks, leasing companies and modarabas of the 1990s were licensed in their dozens and lost in their dozens — to governance, to funding models that borrowed short to lend long, to scandal — not to bank predation. Insurance has sat below one percent of GDP for a generation, and the honest reading is that its own industry kept it there — thin products, thinner distribution, and too little investment in the trust the business runs on; voluntary pensions found few takers because few were ever truly sold them; and the stock market’s own crises of confidence did more to keep the retail investor away than any bank ever did. Every licence in this universe — fund manager, insurer, pension manager, finance company, modaraba — is signed at the SECP, as in any well-ordered market it should be; none has ever required a banker’s consent, and the Commission that signs them has never been a bankers’ preserve — its chairs have come from the civil service, the law, accountancy and the capital markets. Convicting the one organ that stayed healthy for the atrophy of the others is not diagnosis; it is misdirection. And where banks did step into the alternatives — fund distribution, bancassurance, the exchange companies — they brought transparency, stability, branches and scale to industries that had none of these. An economy does not get deeper alternatives by making its banks shallower; it gets them by repairing the alternatives’ own architecture.

What I would co-sign, and what survives

Now the part that matters more than the argument. Most of Dr Haque’s ten reforms I would co-sign as written — and one is already done. Licensing criteria are not waiting to be published; they sit in the public domain on the State Bank’s website, which is how forty-odd digital-bank applicants knew what to file against in 2022. Capital, too, is already scaled to the business: the requirements vary by licence — a microfinance bank, a digital bank and a commercial bank are not capitalised alike — and if anything the jury is out on whether the existing floors are too low and warrant raising. And the industry’s recorded position is the opposite of a captor’s: it has argued for keeping the entry base low, so that competition can come — a captured industry would be lobbying the bar up, not down.

What I would gladly add is statutory decision deadlines. Then: specialised licences with capital scaled to risk; non-bank primary dealers and direct auction access through the depository; term-raising finance companies within prudential limits; equal access to credit and payments data for every licensed lender; open fund architecture; exchange companies settling on Raast; and cooling-off rules for the revolving door. He says an open industry has nothing to fear. Correct — this industry fears nothing on that list and hides nothing from it. I differ on two: resolution through the deposit-protection fund sounds cleaner than merger until one checks the fund’s size — the guarantee is one million rupees per depositor, doubled only in 2024 — whereas the mergers he lists kept every depositor whole; and re-extending the rate floor to corporate treasuries is a price control for counter parties that negotiate daily.

My own asks survive his objections. A limit on sovereign exposure written into prudential regulation binds the lender and is enforced by the regulator — unlike parliamentary debt ceilings, which bind the borrower and have bound nothing. And a first-loss guarantee does not park risk with the state; it buys information — priced until repayment histories make guarantees unnecessary, transitional by design, as a million farmers repaying at ninety-nine paisa in the rupee already demonstrate in the Punjab’s Kissan Card Programme.

The shovel, answered

Dr Haque closes with my reservoir and the dam, and improves it: reservoirs, he says, do not litigate their tax bills or send alumni to run the ministry that builds the dam. Vivid — but nor do captors pay the dam’s highest water rate, nor does a captured legislature lock them out of the control room by statute, nor does a captured register show three names in thirty-one across seventy-nine years. The metaphor is his; the record is everyone’s. He calls privatisation half a reform, and on this we close in agreement — except that the unfinished half does not sit inside the banks. It is the savings architecture around them and the tax base beneath them. Finish those, and the field he asks about will have been rebuilt — by everyone, for everyone.

And since the industry’s ledger is in question, close with its newest entries — each carried on the banks’ own books, with no sovereign guarantee and not a rupee from the exchequer. Eighteen banks signed the largest financing transaction in the country’s history, Rs1.225 trillion in September 2025, to retire the power sector’s circular debt — part restructuring, part fresh money, priced concessionally and secured on cash flows rather than the state’s word — the object being relief to consumers, with the debt-service surcharge falling away in time.

Banks restructured Rs268 billion of the national airline’s legacy debt — ten-year money, rates brought down from roughly twenty-three and a half percent to a ceiling of twelve, the reduction taken on their own income — and so cleared the balance sheet that reopened privatisation after two decades. They cut the export refinance rate by three full points to four and a half percent, and when the policy rate later rose, absorbed another point to hold exporters there into 2027 — a collective price reduction sought and cleared through the proper channels, which deserves a pause: the one documented episode of this industry acting in concert on price was to lower it. And when the federal remittance rebate was discontinued last July, the industry took the cost onto its own books — close to a hundred billion rupees a year, with a sixteen-billion-rupee annual prize pool for remitters on top — and inflows still hit a record 41.6 billion dollars. All this while SME, farm and housing credit stand at records.

That is not the conduct of a protected oligopoly extracting from the field; it is the conduct of an industry repairing it, beyond the call of any duty — and all of it, as it happens, in the years a banker held the finance portfolio.

The wrong door

All of which arrives at the conclusion this whole exchange has been circling for a month: we are knocking on the wrong door. Pakistan’s problem is not monetary, and therefore not, at its root, a banking problem; it is overwhelmingly — I would say entirely — fiscal. Monetary conditions are an outcome of the fiscal stance, not a lever beside it: under fiscal dominance, the textbook term for our condition, the central bank’s instruments and the banking system’s balance sheet are conscripted into financing the deficit, and every symptom catalogued across these four columns — the sovereign’s share of bank assets, the thin pools of patient capital, the saver’s lot, the twelve trillion rupees in cash — proportionately among the highest in the world — is the shadow of that one object. Nor is this a banker’s private doctrine: John Cochrane — three decades at the University of Chicago, Dr Haque’s own alma mater — built its modern statement in one of my favourite books, The Fiscal Theory of the Price Level, in which inflation and crowding-out are, at bottom, fiscal phenomena that a central bank can reschedule but cannot repeal while the deficit stands.

We may beat the banking horse as long as we like; it will not pull a fiscal cart. And my worry is practical, not thin-skinned: scrutiny of banks is welcome, and I have answered every item of it above, and would be happy to continue to do so wherever it’s warranted, but every column spent on bankers and their biographies is a column not spent on the deficit, and that misdirection is billed to the people waiting for the turnaround — the common objective both of us write for: an economy run for the welfare of its people — and thus my own thesis of “Welfare-GDP”.

So let me end not with a rebuttal but with an agenda, and an invitation to agree on it. At the government’s tax workshop with the IMF last week I put four recommendations for the taxation system — offered as a banker, from the industry that is already the exchequer’s largest taxpayer, with one interest to declare: taking credit to the unbanked — closing the fiscal loop with a monetary incentive.

First, reward the first-time borrower on both sides. Nobody joins the tax system to pay tax; they join it to borrow — so let the first formal loan carry an interest deduction and a three-year shield from retrospective audit for the borrower, and let the bank’s income on that loan be taxed at the normal corporate rate rather than the 54.5 percent otherwise: bounded to one loan and three years, it pays for itself in the base it creates.

Second, phase out the filer/non-filer distinction, which turned a legal duty into a toll, made every bank account a tax-exposure point and pushed money into cash: one rate for everyone, and enforcement, sector by sector, against those who should file and do not, starting where documentation gains most.

Third, staff the tax office like the market it polices: economists, accountants and data scientists hired laterally, on market terms, into the Tax Policy Office and the FBR’s audit and large-taxpayer units, judged on assessments that survive appeal rather than on June cash — and a year’s articleship at the FBR for every trainee accountant. Fourth, put the FBR’s own books on accrual, as the United Kingdom and Australia do — revenue when due, refunds as liabilities, an audited trust statement — so the June calls end and a refund becomes a bankable receivable. And track it all on a public dashboard — two lines on one concluding graph: tax rates coming down, and taxpayers going up.

Agree on those, and the debate worth having opens behind them: pensions funded in kind, with the state’s land bank as its contribution to professionally managed pension funds in public-private partnership; state-owned enterprises governed through genuinely independent and strengthened regulators; subsidies that are targeted and paid on performance; BISP rationalised between protection for those who cannot earn and leverage — microfinance — for those who can; and the budget leveraged, through guarantees and impact bonds, for education and skills, health and climate. Fix that ecosystem and the monetary side of the equation — banks, insurance, pensions, capital markets — falls into place of its own accord, for these institutions are at the receiving end of the stick, not the hand that swings it — as I have been urging for years. And there is a worthier response to the bankers’ presence in policy rooms than resenting it.

The running refrain of our discourse is that whoever occupies the space is bad — the bankers are bad, the bureaucrats are bad, everyone who has gained the ground is bad — with little substance behind the adjective and no curiosity about the harder questions: who conceded that space, and why? Where did the profession go wrong, and what must it do to win the ground back for the larger good of our people? It is a subject Dr Haque himself has written on movingly, in his recent essay on Pakistan’s missing economics profession.

The answer will not come from calling names at those who filled the vacuum — they earned the call, for right reasons or wrong — but from better research, better ideas and integrity in policymaking and its implementation. That is the moot point for all of us to ponder; people look to professionals — economists above all — to shape their understanding, and they deserve to have it shaped right. That is the Charter of Society I keep returning to: the fundamental change arrives when society demands it, and demands it right. I remain, as always, open to this debate; my only submission, as before, is that it be conducted on the facts — rhetoric and populist slogans will not get us anywhere. The side with nothing to fear should have no difficulty agreeing on the facts, as Dr Haque and I have done across this very useful and, to my mind, encouraging exchange — and with a fiscal and monetary reform agenda now emerged from it, my hope, I reiterate and submit, is that we end the debate by agreeing on it, for the welfare of our people. Thank you, Dr Haque.

(Concluded)

Copyright Business Recorder, 2026