Tuesday, November 3, 2009

Is Pakistan Too Big to Fail?

The phrase "too big to fail" has gained currency in the United States to describe large and troubled financial institutions since the beginning of the banking crisis last year. The characteristics of such institutions include their large size and huge impact on the rest of the US banking system and the global economy at large.

Seen in the context of regional and global geopolitics, are there any parallels between the the large US banks and the Pakistani state? Let's examine this proposition in a little more depth.

Large Size:

In terms of its size, Pakistan is one of the largest countries in the world. With population exceeding 170 million, it is one of only eight nations armed with nuclear weapons. The nation ranks as sixth largest in population, seventh largest in its army size, 8th in number of mobile phone users, 10th in educated English speaking population, 10th in labor force size, 17th largest in number of Internet users, 26th in economy and 34th in land area.

Strategic Location:
Pakistan sits at the entrance to the oil rich Persian Gulf, and it shares borders with Afghanistan, Iran and the world's most populous nuclear states of China and India. Pakistan's Gwadar port is only 180 nautical miles from the exit of the Straits of Hormuz, considered extremely important for the flow of the bulk of world's demand for oil transportation from the Gulf nations. It provides convenient access to sea routes for many of the landlocked mineral-rich Central Asian states and Western China.

Pakistan has a 650-mile long coastline on the Arabian Sea, extending from India to Iran. In addition, some of the air and land routes between west and east pass through Pakistan because of its central location. Karachi and Gawadar have natural harbor ports serving as trading and re-fueling stop for ships.

Major Failures:

Not unlike the troubled US banks facing the prospect of certain failure, Pakistan also shows up at number 10 on the failed state index compiled by Fund for Peace and Foreign Policy magazine in 2008. However, in spite of the disastrous political leadership and extremely poor governance, the country’s saving grace is arguably its people. As the consequences sink in among Pakistan’s secular elite of the rising Taliban, there are signs that the country’s educated middle class – in Islamabad, Lahore and Karachi, cities rocked recently by continuing terrorist attacks – is losing its patience with radicalism. The urban middle class has more clout than many analysts think. It constitutes the backbone of the army, the business and professional classes and the opinion makers in the media. And the middle class is getting serious about its responsibility. They have now compelled the government into taking more decisive action.

Anger and Distrust:

Just like the US bankers who are getting bailed out at US taxpayers' expense, Pakistanis do not trust Uncle Sam, either. But, in spite of the widespread and deep distrust of the United States, the latest polls now indicate that 86 percent of Pakistanis agree that Taliban and Al-Qaeda militants pose a problem for Pakistan and more than two-thirds support a recent Pakistani army offensive against the extremists. Just as many US taxpayers are unhappy with the massive bailout of the US financial services, there is popular opposition to bailing out many troubled nations around the world. Just as people say that US bankers should have to pay for their own failures, there is a strong feeling that nations who have misbehaved should be made to pay for their mistakes.

Consequences of Failure:

The fear of contagion triggering national and global economic collapse was the chief reason why the US acted swiftly and decisively to prop up the failing financial institutions on Wall Street last year. The same "contagion" logic applies to Pakistan's potential failure which can lead to catastrophic consequences for Asia, the Middle East and the rest of the world, and seriously hurt American economy and strategic interests. If a nuclear-armed nation of 170 million people with a large military falls, then the millions of Pakistanis armed and trained to fight could spread out into the neighboring nations and beyond. This could be highly destabilizing and extremely dangerous for the global peace and prosperity.

Rewards of Success:
If Pakistanis, Americans, Europeans and the world make a commitment and do succeed in helping to bring peace and stability to Pakistan, then there can be an expectation of a significant upside for all. In 2007, analysts at Standard Chartered bank estimated that Pakistan has a middle class of 30 million which earns an average of about $10,000 per year. And adjusted for purchasing power parity (PPP), Pakistan's per capita GDP is approaching $3,000 per head. A peaceful, stable, and prosperous Pakistan has a lot to offer in terms of a large, well-educated, English speaking work force, a huge market opportunity for all sorts of products and services, and tremendous potential for global economic growth.

There is no guarantee of success if the world does make a serious commitment and starts making a long term investment in helping Pakistan, but failure is definitely not an option.

Here is British Writer William Dalrymple talking about India and Pakistan:

Here's another video clip from Intelligence Squared debate about Pakistan:

Here are two more video clips about Pakistan:

Related Links:

Pakistan's Foreign Visitors Pleasantly Surprised
Country Ranks 2009
Start-ups Drive a Boom in Pakistan

Escape From India
Reflections on India

Pakistan Conducting Research in Antarctica
Pakistan's Multi-billion Dollar IT Industry

Pakistan's Telecom Boom
ITU Internet Data

NEDUET Progress Report 2008

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Global Firepower
Should Pakistanis be Proud of Their Country?

Pakistan's International Rankings

Assessing Pakistan Army Capabilities

State Fragility Index List of Nations
Pakistanis See US as Biggest Threat
Pakistan is not Falling

Fear, Greed and Bailout on Wall Street

Jinnah's Pakistan Booms Amidst Doom and Gloom


Anonymous said...

Too big to fail is being question by many people with in usa. Further it also bring out an confession of the following irregularities being :

Poor governance
Unethical practices.

Further it is only USA which did it for itself and no other country sent aid for the usa to bail out its own country. They did the same on the strength of their currency and military power.

Every body in the world is today talking about slowly withdrawing it dependence on usa starting from china.

So if pakistan things that it is too big to fail, it might fetch a dime more.

See the conditions that are imposed on pakistan for 1.5 billion usd per annum that is approximately 10000 crore of PK inr.

Even after the bailout the creditibility all these organization world wide has gone for a toss and nobody is going to go to them.

Anonymous said...


On the lighter size, india is not in the list of failed nation. Hope that will make your agree that india is far ahead of what pakistan is today. Further these are not report by indian baised media.

Anonymous said...

When people say it is a failed state they mean they would LIKE to see it failed. It is their porn to get erection.

Shams said...

I do know that USSR was bigger, the Roman Empire was bigger, the Indian Empire was bigger, the British empire was bigger and the Persian Empire was bigger, to name a few.

Riaz Haq said...

And what were the consequences of failure for each for the world?

The US and the world on edge when USSR fell, worrying about the nukes. Massive assistance was provided by US and Europe to stabilize Russia and secure the nukes. Russia became the largest recipient of US and European aid in the early 1990s.

The fall of the Roman Empire led to a long period of anarchy in Europe called the Dark Ages that lasted several hundred years.

The Fall of Mughal empire devastated India and it is still reeling from extreme poverty, hunger and deprivation. The pre-British, early 19th century Moghul India, described as caste-ridden, feudalistic and unmodern, was economically ahead of the rest of the world,including Britain and the US, according to S. Gururmurthy, a popular Indian columnist. The Indian economy contributed 19 per cent of the world GDP in 1830, and 18 per cent of global trade, when the share of Britain was 8 per cent in production and 9 per cent in trade, and that of US, 2 per cent in production and 1 per cent in trade. India had hundreds of thousands of village schools and had a functional literacy rate of over 30 per cent. In contrast, when the British left, India’s share of world production and trade declined to less than 1 per cent and its literacy was down to 17 per cent. And yet, in 1947, India had large Sterling reserves, no foreign debt, and Indians still had an effective presence in such trade centers as Singapore, Hong Kong, Penang, Rangoon and Colombo.

So even when the world was not as globalized and interconnected, there were still severe consequences of the fall of big nations.

Same with the analogy of the US failure in saving banks that led to the great depression of the 1930s. That's why the US acted quickly to save banks considered "too big to fail" last year.

Riaz Haq said...

Anon: "When people say it is a failed state they mean they would LIKE to see it failed...."

Don't worry about the miserable bigots. Dreaming about Pakistan as a "failed state" is their way of unsuccessfully trying to cure the severe ED they all suffer from.

Shams said...


Those were all important empires. Pakistan is a nothing empire. In a few weeks, Zardari is going to fire Gilani, fire the assembly, and you will be consuming a lot of electrons writing new blogs. Nothing more, no dark ages other than in Pakistan.

You need to know what "comparative analysis" is, really.

Suhail said...

Riaz has a point there. "Too big to fail" is coined for the banking crisis where the US govt steps in to save the institution if it is too big in terms of its strategic importance for the Americans. The same applies to Pakistan also as the US govt is trying to step in to prevent Pakistan from collapse because of its strategic importance to Americans.

Riaz Haq said...


I think Shams has jumped the gun without reading the full post.

Unknown said...

Poor governance, Corruption & Unethical practices are enough to become a failed state!

Corruption is at its peak right now. starting from the President and his son (Bilawal) to provincial assemblies ministers.

Just week ago, Zardari and Bilawal bought 314 acres of LAND in ISLAMABAD for Rs. 60 Million whose origial cost is Rs. 2000 Million.

As its written in Kerry-Lugar Bill that more than half of the amount will be given to NGOs, Wives of many federal ministers already started to have their own NGOs to get the money.

Every govt institution has already filled with PPP illetrate peoples. All Unions are restored.

Our own acts are enough to made our own state as failed state.

Anonymous said...


Farooqui you stole word from my mouth. I can put the reason for every civilization failure. It is when the popel and the ruler both become corrupt.

Anonymous said...

An interesting article on "TOO BIG TO FAIL"

Paul B. Farrell

Oct. 20, 2009, 1:38 p.m. EDT

Death of 'Soul of Capitalism:' Bogle, Faber, Moore

20 reasons America has lost its soul and collapse is inevitable

By Paul B. Farrell, MarketWatch

Quoting 18th century Scottish historian Alexander Fraser Tytler: "The average life span of the world's greatest civilizations has been 200 years" progressing from "bondage to spiritual faith ... to great courage ... to liberty ... to abundance ... to selfishness ... to complacency ... to apathy ... to dependence and ... back into bondage!"

Moin said...


It was obvious from the very beginning when Musharraf was leaving that destabilizing Pakistan was in the interest of America. Now that Pakistan is destabilized they have achieved their goal. Of course, they do not want the destabilising process to go on now as they have learned from Iraq that if a country destabilizes too much it is harder to control. So now the Phase 2 begins: stepping in to stop the destabilizing process.

Shams is right in the sense that Pakistan is no huge Empire or civilization and it does not matter to the world what happens there. However, US has invested a lot of time and money in it for the sake of gaining a foothold in this strategic land location. It does not want Russia or China to gain this territory. Pakistan is a great location for USA to monitor not only the Indian Ocean but also the land masses of former USSR, China and the Indian sub Continent.

Haseeb said...

Riaz, Another fine article! Failure is not an option even for the good of Pakistan’s enemies. They must realize that this area has never been easy to rule and a failed Pakistan will be an unmanageable problem for the world. If they think there are problems now they haven’t seen nothing yet, so to speak. A prosperous and serene Pakistan will be a big stabilization force in the region and will play a big role in furthering peace and harmony globally.

Iqbal M said...

Instead of intellectual analysis, just ask any ricksawala in Karachi and he'll tell you there is no hope.

Riaz Haq said...


In the current environment, the easiest thing in the world is to join the pessimists bandwagon, and become a full-time complainer.

But let's consider the following:

The proverbial glass is usually neither entirely full nor completely empty for any individual or nation It's usually half full or half empty, depending on your perspective.

In this difficult hour for Pakistan, I choose to see it half full, and encourage all of us, each in our own way, that we try and fill it up completely to give new hope and spirit to Pakistanis.

Anonymous said...


Can there be some actual work on the ground to assist these poor people displaced by the factor which are beyond their control and unfortunately not equipped enough to leave the country for greener pastures to provide arm chair expertise.

Riaz Haq said...

Anon: "Can there be some actual work on the ground to assist these poor people displaced by the factor which ..."

Do you know that the Swat operation has already been a success and the bulk of the Swat refugees have returned home? I guess not.

The other thing you probably did not note, but some Indians did, is that the Swat refugees looked better fed, clothed and sheltered even in a disaster than most Indians do under normal conditions in India?

Anonymous said...


a nice article reproduced in the site which questions the lawyer protest and removal of mush


By Dr. Sachithanandam Sathananthan,

Dr Sachithanandam Sathananthan earned his Ph.D. from the University of Cambridge. He serves as a Visiting Research Scholar at the Jawaharlal Nehru University School of International Studies.

Sep 12, 2008

The Great Game Continues

For the moment, there is great euphoria among Pakistani liberals over the presumed ‘return to democracy’. The comments by Ayesha Tanmy Haq are typical: ‘We have removed a dictator by the citizenry showing that real power lies with them.’ The hapless liberals have yet to discover Late Neo-colonialism and its devious manoeuvres for regime change; they have in fact effectively legitimised them by opposing Musharraf. They are agonisingly unaware of the labyrinthine geo-politics and economic imperatives underlying the New Cold War. They are blissfully going along with the collaborationist leaders who are bartering away the country’s future for the proverbial pieces of silver.

Riaz Haq said...

A Washington publication the Hill" has a report on Pak Ambassador Haqqani's "candid assessment" of US-Pak relations:

Husain Haqqani offered a candid assessment of where Pakistan stands at my IFE / INFO Global Connections Public Policy Roundtable last Friday. In addition to being Pakistan’s youngest ambassador to the U.S., Haqqani was a strong advocate of the late Benazir Bhutto, who stood as a symbol of democracy in a country where dictatorship has long prevailed. 

Pakistanis, Haqqani noted, believe that the U.S. has long used their country, not engaged it. Hillary Clinton’s trip there was significant to the extent that they saw a different side of our country. In attending town halls and visiting colleges and universities, she tried to demonstrate that the U.S. is genuinely concerned with Pakistan’s welfare. Polls showed that Pakistani approval ratings of the U.S. went up by 7 percent after her visit. Unfortunately, though, one high-profile visit is unlikely to do much, because many of the country’s woes are historically rooted. Pakistanis had no idea what suicide bombers were prior to 9/11. The U.S. supported radical Islamists in their fight against the Soviet Union, but it’s precisely those Islamists who are now waging jihad across the globe, including in Pakistan; many Pakistanis regard the Taliban as an existential threat to their country.

Although Pakistan’s economy is back on track (largely due to IMF lending), insecurity limits its ability to achieve sustained economic growth. It shares a border with a hostile neighbor (India), with a desperately poor country in which the Taliban is reasserting its influence (Afghanistan), and with a nation that’s in the midst of tremendous domestic upheaval (Iran). Being in a near-constant struggle against internal and external threats, real and imagined, has its consequences: Pakistan spends far more on defense than education, with the result that the country has only a 38 percent literacy rate. As both Ambassador Said Jawad of Afghanistan and Ambassador Husain Haqqani say, "We live in a dangerous neighborhood."

Haqqani noted that India is perhaps the biggest elephant in the room. Pakistan is wary of the Indo-U.S. relationship, which is robust and multifaceted. He mentioned that India is Boeing’s largest customer, and also that 26 members of the Obama administration are Indian-American; facts like these naturally make Pakistan nervous.

As much as it’s concerned with India, Pakistan is also anxious to see how its relationship with the U.S. evolves. Haqqani noted that Pakistanis want to receive credit for their counterterrorism efforts; Pakistan has killed or captured more al Qaeda leaders than has any other country. He concluded by saying that the U.S. won’t truly be able to win hearts and minds there until it adopts a more comprehensive engagement strategy — one that has a political element and a socioeconomic element. Haqqani encouraged American companies to invest in Pakistan, offering a Thomas Friedman-like thought that Pakistanis need to be making boxer shorts for Wal-Mart, not boxes of bombs.

Whether or not that hope is realized will depend a lot on how Pakistan’s military fares against the Taliban. Let’s hope that it succeeds.

Kathy Kemper is founder and CEO of the Institute for Education, a nonprofit foundation that recognizes and promotes leadership and civility locally, nationally and in the world community.

Riaz Haq said...

Here's a report in India Today about India's business community recommending inflicting pain on Pakistan:

The FICCI Task Force Report on National Security and Terrorism has underlined the need for a 'national counter-terrorism architecture' which establishes a national counter-terrorism agency, a national intelligence grid, a ministry of internal security with a cabinet minister and a new intelligence agency dedicated to non-state actors.

The report of the FICCI Task Force that was presented to Home Minister P. Chidambaram on Monday has made wide-ranging recommendations to counter the threat to India's security from cross-border jihadi terrorism and Naxalite insurgency.

Addressing media persons, Rajeev Chandrasekhar, MP and Immediate Past President, FICCI, and Chairman of the FICCI Task Force Report on National Security and Terrorism, expressed deep concern over the extent to which a pattern of contemporary jihad and home-grown terrorism has manifested itself in India.

The report documents how Pakistan's dubious policies on terrorism and its military establishment infused with jihadist mindset will continue to threaten India's security in the coming years.

The co-chairman of the FICCI Task Force Report on National Security and Terrorism is Harsh Pati Singhania, President, FICCI. The members of the Task Force are Yogendra K. Modi, Past President, FICCI; Ajit Kumar Doval, Former Director, Intelligence Bureau; Lt. Gen. (Retd.) Satish Nambiar; Air Chief Marshal (Retd.) S. Krishnaswamy; B. Raman, former additional secretary in the cabinet secretariat; Ved Prakash Marwah, former police commissioner, Delhi; and Dr Amit Mitra, Secretary-General, FICCI.

The report points out that that Pakistan will maintain its infrastructure of terrorism - the networks that recruit, train, equip and finance jihadis - inside Pakistani territory. In this context, the task force recommended leveraging international cooperation by co-opting foreign expertise for developing capacity, monitoring movements of terrorist leaders, and sharing information and knowledge with them; developing capabilities for covert and overt operations on terrorist locations, a common investigation cell for whole of India, a calibrated and well defined decision-making process and accountability at various levels, place strong 'immediate response' mechanism and tailor-made terrorism prevention and incident management drills for each metro city, vulnerability assessment to identify areas and establishments requiring necessary security measures and incorporating the private sector and civil society into India's war on terror.

The report reflects on what has emerged as India's biggest internal security threat - Maoist insurgency and the lack of a robust institutional mechanism to deal with them. The government's approach toward Naxalite insurgency has so far recorded limited success, with each affected state developing its own security response.

The task force's assessment is that the lack of coordination between national, state and local security services and lack of developmental initiatives leading to increased urban-rural divide have prevented a containment of the Naxalite threat.

The task force is convinced that Pakistan has to make a clean break from its existing state policy of supporting terrorism. Meanwhile, India needs to build up its capabilities to counter Pakistani state designs, if it doesn't disown terrorism and come clean, the task force recommends.

Riaz Haq said...

Here is an excerpt from an interesting NPR radio report about Indians' obsession with Pakistan:

Many analysts believe India's biggest foreign policy challenge these days is its rivalry with China.

But changing attitudes about Pakistan isn't going to be easy. The subject dominates India's news media, which often makes no attempt to disguise its bias. A recent television newscast used the phrase "most preposterous" to describe a position espoused by Pakistan's interior minister.

"It's hysterical. It's absolutely, totally unprofessional," says Seema Mustafa, editor of India's Covert magazine. "I think the television channels have actually forgotten they are journalists, and they've become advocates for war."

She says the relationship between India and Pakistan is a paradox. "At the individual level, it turns into a whole level of camaraderie. And at the political level, it is akin to hate," Mustafa says.

Indians who take a hard-line stance on Pakistan sometimes display a strangely contradictory view of that country, Mustafa says.

"People who have been sort of going hammer and tongs about nuking Pakistan — of taking your army across and finishing that country — are people I have seen visit Islamabad and be even friendlier with the Pakistanis. And the families all start visiting each other, big gifts are taken. Then after that, they come back and say the same thing," Mustafa says.


Puneet said...

While there can be a debate whether Pakistan is a failed state or is going to fail. There is no doubt about the fact that Pakistan is on a decline.

Though India's parameters look quite miserable when compared on per capita basis this mainly due huge huge population which it has to support. It still is a rapildy growing large ecomomy. India is amongst BRIC nations if you recall.

Pakistan has had innumerable advantgages in the past ,it has been US's key ally coz of which it got access of US technology in defence and other areas. Then being an islamic state it had sympathies of middle eastern countries which provided it the aid.

But there has been a sea change in last 10 years.After watching this video glorifying Pakistan I would like to know :

1. How many Pakistani companies are there is fortune 500 list? How many in fortune 1000 ? Is there any company which is even close ?

2. How many Pakistani companies are known outside of Pakistan ?

3. How many Pakistani entreprenuers have made a mark in the west ( US etc )

4. How many Pakistani entreprenuers in World Billionaires list ?

5. Pakistan's foreign reserves are a record high at $ 12 billion, how much of it is borrowed money ?( see the statement of the chairman of State Bank of Pakistan )

6. Why is the currency of Pakistan on such a fall ? Against the Indian ruppee only it has fallen from 1.2 per Indian ruppee to 1.8 per Indian ruppee in just 5 years. What consequences will this have?

7. What is the infalation rate in pakistan ? A healthy 23% !

8. What is the IMF's forcast of 2009 growth rate for Pakistan ? for next 10 years ?

It is a shame on us Indians that Pakistanis till now even had the guts to compare themselves to India. But in next 10-20 years India should outgrow Pakistan so much that no one even try and compare India and Pakistan . Mr Haq if you have taught in business schools than I am sure you would recall the basic fundamental of finance which says that growth is the most important factor which determines the value of any asset.

P. S. Mr Haq for your information the FDI in India was more than $ 40 Billion last year ( please dont continue living in Alan Greenspan's world of 2005 )

Riaz Haq said...

Puneet, I agree with some of what you have to say but I must tell you that the picture of India you paint is far from complete.

Having a few multinationals and talking ad nauseum about it does not solve the very fundamental problems of access to food, clothing, shelter, sanitation, heakthcare etc for the vast majority of people.

As to your comparison with Pakistan, Pakistan has and continues to do better than India on the above social indicators.

An estimated 200,000 Indian farmers have ended their lives since 1997, including many in this area, largely because of debt.

"I should not compare. But countries like Bangladesh, Pakistan and Sri Lanka are better," Syeda Hameed, member of India's planning commission, said last year. The conference was organized by the Confederation of Indian Industry and the Ministry of Development of Northeastern Region.

The latest Global Hunger Index 2009 released last month reports that hunger in India is comparable or worse than countries in sub-Saharan Africa. On a list of 84 countries, Pakistan ranked 58 while India ranked worse at 65.

Pakistan's economy has more than doubled this decade, as has India's. The slowdown we are seeing now is about a year old and it may last another year or two, but the growth will return to Pakistan eventually.

Unless India addresses these basic inequities, the Maoists will continue to gain strength and might shatter the peace so far enjoyed by the Indian urban middle class.

anoop said...

"Pakistan's economy has more than doubled this decade, as has India's. The slowdown we are seeing now is about a year old and it may last another year or two, but the growth will return to Pakistan eventually. "

---> Thats what I am saying. Growth in Pakistan in the last decade was artificial boosted by massive official and unofficial aid by the Unites States. Not so with India.
Growth is not that easy to achieve and you need large FDI for that. But,will anyone invest in Pakistan in this climate? What about the next 5 years? the next 10 years?
There are a few things you need at all costs to get investment- Stable political climate,security,infrastructure,etc. None of this Pakistan possesses.

Riaz Haq said...

anoop: "Thats what I am saying. Growth in Pakistan in the last decade was artificial boosted by massive official and unofficial aid by the Unites States. Not so with India."

I think your understanding is a distortion of reality. $500m a year of US aid is a drop in the bucket for a $150 billion Pak economy.

Here are some of the key highlights of the Musharraf era economy:

1. Pakistan's tax base and government revenue collection more than doubled from about Rs. 500b to over Rs. 1 trillion.

2. Pakistan's GDP more than doubled to $144b in 2007 since 1999.

3. Most recent figures in 2007 indicate that Pakistan's total debt stands at 56% of GDP, significantly lower than the 99% of GDP in 1999.

4. Pakistan attracted over $5 billion in foreign direct investment in the 2006-07 fiscal year, ten times the figure of 2000-01.

5. In spite of the election-related political turmoil, Pakistan’s economy maintained its momentum in 2007, growing by 7%, slightly more than the 6.6% for 2006. Agricultural sector growth recovered sharply, from 1.6% in 2006 to 5% in 2007, while the manufacturing sector growth continued at 8.4% in 2007, slightly more moderate than the 10% for 2006. Services grew at 8% in 2007, down from 9.6% in 2006.

6. The strong consumer demand in Pakistan drove large investments in real estate, construction, communications, automobile manufacturing, banking and various consumer goods. Millions of new jobs were created. By all accounts, the ranks of the middle class swelled in Pakistan during Shaukat Aziz's term in office. According to Tara Vishwanath, the World Bank's lead economist for South Asia, about 5% of Pakistanis moved from the poor to the middle class in three years from 2001-2004, the most recent figures available.

7. The Karachi stock market surged ten fold from 2001 to 2007.

The Wall Street Journal did a story in September 2007 on Pakistan's start-up boom that said, "Scores of new businesses once unseen in Pakistan, from fitness studios to chic coffee shops to hair-transplant centers, are springing up in the wake of a dramatic economic expansion. As a result, new wealth and unprecedented consumer choice have become part of Pakistan's volatile social mix."

Puneet said...

Mr Haq, India is a very large population to support that the reason its per capita figures look so terrible.

1. Bhutan's per capita GDP is much higher than India and around that of China according to you Bhutan should be the most prosperous country in the South Asia.
2. Bhutan in the past few years has grown by 14%. The world should stop investing in India and China and start investing in Bhutan then.
3. Bhutan would definitely better on those social factors which you regurgitate quite often, so do you agree that Bhutan is better than Pakistan?

India and China will continue faring low on per capita figures because of their huge population. Per capita figures do not carry much weight in the bigger scheme of things. The important factor is that India and China's middle class exceeds the entire population of US and that is where the world is getting ebullient about.

What again matters is the entrepreneurs and the strength of domestic industry. You say having few companies doesnt make a difference,I beg to differ. India is considered a global IT powerhouse, but if you look closely India just has a handful of big IT companies. Japan lauded for its auto Industry ,but its just Toyota, Honda and Nissan which have made it so big. A handful of companies matters a lot. These few companies drive the entire nation.

You are going ga ga over tax receipts doubling in 10 years. Pakistan still has one of the lowest tax collection rates in the world (10% of the GDP). This was also pointed out by IMF which said that Pakistan should improve on its tax receipts and should not always depend on foreign help. (I will provide the link to this if you desire). You point out that Pakistan’s total debt has reduced why is then that Pakistan’s bond’s rating has disproved? Pakistan’ currency is on a free fall against US dollar, it has fallen by more than 30% in last one year alone. Leave aside everything dear sir, falling currency itself is √ big indicator of √ country’s economic performance. This high inflation will only lead to printing more money which will again lead to falling currency and ever increasing inflation. Pakistan might have grown at √ good rate in past 10 years but the future forecast is bleak at best. This year’s forecast is just 2%. 3% for next year. There is absolutely nothing coming from Pakistan which suggests that it would be on √ road to recovery in next 2 years. I don’t know where your confidence stems from ?

Pakistan’s figures on per capita basis are good only because of its smaller population base as compared to India, but then so does Bhutan.

P.S. All the facts which I have mentioned are correct, If you wish I will provide the links in my next posting.

Riaz Haq said...

Puneet, "A handful of companies matters a lot. These few companies drive the entire nation."

That's exactly problem with your way of thinking. These companies are in it for themselves. They do little to lift the population out of poverty or illiteracy. In fact, these corp don't even want to pay their fair share of taxes.

The US, Europe and Japan realized it very early and their governments enforced tax laws and collection to ensure funds to invest in education, healthcare and infrastructure, something Indian govt has failed to do.

As to your discussion about Bhutan. it's irrelevant. Bhutan is no better than India. China, on the other hand, is a great success story in terms of its economy and basic social indicators.

Pakistan has clearly slipped this year, but I already see signs of economic recovery, in spite of the daily carnage on the streets. There are many risk-tolerant investors rushing to invest in Pakistan. According to BMI research, for example, a Malaysian co has just decided to invest in building half a million low-cost homes annually in Pakistan during the next several years. Many Gulf investors are returning to Pak.

Puneet said...

Mr Haq,

Capitalism is far from being perfect but at the moment it is the best model available. Capitalism has been successful because the companies in course of maximising their profits eventually also end up maximising the social benefit as well. Infosys, Reliance, Wipro have provide employments to millions, they have invested in the country and its infrastructure and you say these guys donot do anything for the people? Of course the poorest of poor donot benefit but what about the middle class which is even more than the entire population of US and twice that of Pakistan?

When I have the analogy of Bhutan , I was sarcastic because you always compare in terms of per capita figures!

China has been a great great success story,its a global powerhouse, but if you will compare on per capita ( as you do in case of Pakistan) then China again would rank below very very small countries. China ranks below India on all the governance parameters ( See the World bank's Worldwide governance indicators). Despite of this China is miles ahead of India and thats exactly my point, all these per capita and some random studies donot carry weight.

A mere project by Malaysia means that investors are queueing up in Pakistan, how naiive is that. The hard facts are:

1. IMF projects Pakistan's growth rate at 2% this year and not more than 3% next year. Even in next 5 years it is not more than 4% ( This is what talks about the confidance of investors not a random project by Malaysia )

2. Pakistan inflation until recently was 25% , The Pakistani ruppee is on a free fall, 30% down wrt to US dollar . Even against Indian ruppee it has declined around 100% in past 10 years.If investors are investing in Pakistan why is ruppee falling dramatically?

3. Pakistan's tax receipts are the lowest in world( 10% of GDP) and this figure is by IMF which also said that Pakistan should try and increase it and not to depend on foreign borrowing for growth.

4. The country's foreign reserves had dwindled down so much that IMF had to loan it money. ( A statement by no other but the chairman of State Bank of Pakistan)

5. Pakistan's bond rating are just next of being degraded to junk! ( See S&P rating).

6. Pakistan has continuosly figured among top 10 failed states of the world. Why is India not there when you firmly believe Pakistan has and always been better on economic factors than India .

Dear sir, I dont know where you confidence stems from? just talking to few people on streets? I have listed facts to corraborate what I just said. Please talk on facts not just like any other patroitic Pakistani.

P.S. Why did Pakistan sign Kerry lugar bill if Pakistan as lots of foreign money flowing in ( Malaysia project and whatever )?
You also mentioned that the aid provided by the west has been trivial in comaprison to the GDP of Pakistan. Dear sir GDP is not income. Pakistan's total income from tax receipts is only 10% of GDP which equates to $ 15 billion/year so a grant of $ 1.5 billion adds 10% to Pakistan.

Riaz Haq said...

Punit: "Capitalism is far from being perfect but at the moment it is the best model available. Capitalism has been successful because ..."

I disagree with you. As the modern system of capitalism faces the most serious challenge of its existence since Adam Smith, the name of John Maynard Keynes (1883-1946) is being regularly invoked by economists, politicians, bankers, and the media. And with good reason. Born in Cambridge, England, in 1883, the year Karl Marx died, Keynes probably saved capitalism from itself and kept Communists at bay. Keynesian Economics advocates the use of government monetary and fiscal policy to maintain full employment with low inflation.

Keynes described Capitalism in the following words: "Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone."

The US Capitalism would have long been dead if it wasn't for the FDR's socialist program called "The New Deal". Now, the US needs another New Deal, particularly in healthcare, to extend the life of capitalism.


And Pakistani economy will recover. If you know anything about economics, housing starts are considered a major leading indicator of economic activity that affects the entire economy. The key factor that led to US financial crisis was the collapse of housing market.

A half-a-million to a million homes a year in Pakistan can dramatically boost the economy there, and boost demand for all kinds of products and services.

Anonymous said...

Dear Mr Haq,

I agree about your housing project. But inspite of all that IMF projects that Pakistan will grow at a rate of 2% this year and not more than 3% next year. I havent seen any study by any one which puts the growth rate of pakistan higher than this. Infact for next 5 years no one expects ( incl. Pakistani govt.) Pakistan to grow by more than 4%. If you think Pakistan will bounce back why dont you put a figure and lets see if Pakistanis have it in them to beat the IMF forecast and bounce back to those dramatic levels you are speaking about.

Regarding if I know economics . I am an MBA in Economics and Finance. If that counts for you than yes I know economics.

Capitalism is not perfect but is the best model available today. US is one big example that capitalism works!. But if you even call US a failure than yes I have no other argument to make.

I would appreciate your counter arguments on the hard facts about Pakistan which I had enumerated.

Riaz Haq said...

anon: "I agree about your housing project. But inspite of all that IMF projects that Pakistan will grow at a rate of 2% this year and not more than 3% next year."

I don't believe that 2-3% growth takes into account an additional 500,000 housing units a year to be built by Malaysians alone. It's about three times as many as the current total annual home construction.

Please do not underestimate the impact of housing on economic growth. It's been central to US economic policy of encouraging home ownership since the WW II with the creation of Fanny and Freddie.

You can read more about at


Riaz Haq said...

Here's an interesting report by Reuters in Pakistan:

By Alistair Scrutton

ISLAMABAD (Reuters) - If you want a slice of peace and stability in a country with a reputation for violence and chaos, try Pakistan's M2 motorway.

At times foreign reporters need to a give a nation a rest from their instinctive cynicism. I feel like that with Pakistan each time I whizz along the M2 between Islamabad and Lahore, the only motorway I know that inspires me to write.

Now, if the M2 conjures images of bland, spotless tarmac interspersed with gas stations and fast food outlets, you would be right. But this is South Asia, land of potholes, reckless driving and the occasional invasion of livestock.

And this is Pakistan, for many a "failed state." Here, blandness can inspire almost heady optimism.

Built in the 1990s at a cost of around $1 billion, the 228-mile (367-km) motorway -- which continues to Peshawar as the M1 -- is like a six-lane highway to paradise in a country that usually makes headlines for suicide bombers, army offensives and political mayhem.

Indeed, for sheer spotlessness, efficiency and emptiness there is nothing like the M2 in the rest of South Asia.

It puts paid to what's on offer in Pakistan's traditional foe and emerging economic giant India, where village culture stubbornly refuses to cede to even the most modern motorways, making them battlegrounds of rickshaws, lorries and cows.

There are many things in Pakistan that don't get into the news. Daily life, for one. Pakistani hospitality to strangers, foreigners like myself included, is another. The M2 is another sign that all is not what it appears in Pakistan, that much lies hidden behind the bad news.

On a recent M2 trip, my driver whizzed along but kept his speedometer firmly placed on the speed limit. Here in this South Asian Alice's Wonderland, the special highway police are considered incorruptible. The motorway is so empty one wonders if it really cuts through one of the region's most populated regions.

"130, OK, but 131 is a fine," said the driver, Noshad Khan. "The police have cameras," he added, almost proudly. His hand waved around in the car, clenched in the form of a gun.

On one of my first trips to Pakistan. I arrived at the border having just negotiated a one-lane country road in India with cows, rickshaws and donkey-driven carts.

I toted my luggage over to the Pakistan side, and within a short time my Pakistani taxi purred along the tarmac. The driver proudly showed off his English and played U.S. rock on FM radio. The announcer even had an American accent. Pakistan, for a moment, receded, and my M2 trip began.

Built in the 1990s by then prime minister Nawaz Sharif, it was part of his dream of a motorway that would unite Pakistan with Afghanistan and central Asia.

For supporters it shows the potential of Pakistan. Its detractors say it was a waste of money, a white elephant that was a grandiose plaything for Sharif.

But while his dreams for the motorway foundered along with many of Pakistan, somehow the Islamabad-Lahore stretch has survived assassinations, coups and bombs.

A relatively expensive toll means it is a motorway for the privileged. Poorer Pakistanis use the older trunk road nearby tracing an ancient route that once ran thousands of miles to eastern India. The road is shorter, busier and takes nearly an hour longer.

On my latest trip, I passed the lonely occasional worker in an orange suit sweeping the edge of the motorway in a seemingly Sisyphean task.

Puneet said...

Dear Mr Haq,

IMF continuously updates its forecast. Let’s see what IMF thinks about that housing project. The figures will be out soon. As on October 2009 there was no sign of optimism from the IMF.

Your comment "The US, Europe and Japan realized it very early and their governments enforced tax laws and collection to ensure funds to invest in education, healthcare and infrastructure, something Indian govt has failed to do."

Do you have any data to support this fact? India's tax receipts are 18% of GDP. US tax receipts are 22%. India has to improve no doubt but what about Pakistan, its tax receipts are one of the lowest in world at 10%! With such low tax receipts what can you expect? Is this an achievement of Pakistani govt. and Musharraf?

"That's exactly problem with your way of thinking. These companies are in it for themselves. They do little to lift the population out of poverty or illiteracy. In fact, these corp don't even want to pay their fair share of taxes"

What the IT companies have done is no less than a revolution in India; they employ millions directly and indirectly. Do you have any idea what these companies have done to irradiate poverty. Simply providing jobs to such a huge mass itself is the biggest contribution a company can make to the community.

I dont recall any Pakistani company or any entrepreneur who has made a mark in the world. What does it reflect about Pakistanis and its future?

Every time you just sound like any other patriotic Pakistani. You never produce any facts. I am still waiting to hear from you on the facts about Pakistan which I had enumerated. Please cite any credible source which paints an optimistic future for PAKISTAN.
P.S. By the way why did Pakistan sign the Kerry Lugar bill? ? and that too for a meager grant of $ 1.5 billion/yr !!!!! (This is 10% of Pakistan’s annual income.) And you take pride at the resilience of Pakistani economy. Sir, I am at loss of words.

Riaz Haq said...

Puneet: "Do you have any data to support this fact? India's tax receipts are 18% of GDP. US tax receipts are 22%. India has to improve no doubt but what about Pakistan, its tax receipts are one of the lowest in world at 10%! With such low tax receipts what can you expect? Is this an achievement of Pakistani govt. and Musharraf?"

US tax revenue is 28% of GDP, UK 39%, Japan 27.4%, India 17.7%, Pakistan 10.6.


As to Pakistan's resiliency, here's a quote from the Wall Street Journal:

"Overall, the entrepreneurial class remains a sliver, just over a million people by some estimates. Much of the business is confined to pockets of urban wealth that most Pakistanis won't experience in their lifetimes. And yet, the brief business careers of many entrepreneurs show how rapidly dramatic change can unfold in Pakistan. That change also helps explain why Gen. Musharraf remains relatively popular among this group."


Here's another quote from Reuters:

"A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
They should have. Their clients could have made a fortune.
Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.
As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."

Mark Bendeich
Jan 10, 2008

anoop said...

I'd be expecting Pakistan to be the fastest growing country in the world.
One important flaw I want to point out in your analysis of India. Statistics of present social indicators should always be accompanied with past data so that the analysis takes into account the growth or shrinkage the subject has made in a certain interval of time. I find no such comparison.
Regarding Capitalism, its the perfect system there is in this world. Show me or atleast suggest a better system of managing economy and I'll stand down. Capitalism itself has gone under many changes and it in no way reflects the capitalism practiced by the US 50 years ago. Again, you fail to capture the changes this idea of free-market has gone through the ages.
Investment in a country is driven by the country's image and economic indicators. Political stability and infrastructure are stabalisers when it comes to investment. They are a must if any country wants massive amounts of investment. Political stability is still a dream for Pakistan which practices a democracy minus civilian supremacy and that is not going to change in the next few years. Infrastructure is usually improved by a good leadership. And, Pakistan's leadership is pre-occupied with everything else but infrastructure.
The point Puneet makes about large middle class is very important. The US is a country with the largest population which can be considered in the middle class. That is why it is the wealthiest country in the world. Similarly, India and China are on their way to achieve that kind of middle class and that makes them powerful.
There are a lot of points Puneet highlights that economists usually consider in predicting and commenting on Pakistan. A lot of them provide no confidence whatsoever.
I strongly believe political stablity is one of the most important factor in driving investment and hence growth. India and China have these and hence are 2 fastest growing countries in the world. For Pakistan the less said the better on this front.

Riaz Haq said...

anoop:"Show me or at least suggest a better system of managing economy and I'll stand down. Capitalism itself has gone under many changes and it in no way reflects the capitalism practiced by the US 50 years ago."

Most of Western Europe is dominated by social democrats or socialist philosophy that shows in their social indicators, putting most of them ahead of the United States.

Chinese economy is also heavily controlled by the state, and almost all of the banks are owned or controlled by the government.
Rapid industrialization in China was spearheaded by Peoples Liberation Army, not driven by any private individuals or institutions.

And political stability is definitely important. But the best guarantee of political stability is social justice which is a major problem in India and China, and to a lesser degree in Pakistan, as born out by the Gini index that measures rich-poor gap.

Riaz Haq said...

Here's an Indian report from last year about India significantly lagging Pakistan in clean energy and CNG usage:

New Delhi, May 5, 2008
India is way behind Pakistan in terms of its gas pipeline network, with the neighbouring country’s network stretching around 56,400 km against its 10,500 km, connecting only 20 cities compared to Pakistan’s 1,050, industry body Assocham said.

Pakistan’s pipeline density, at present is 1044 km/mmscmd (million metric standard cubic meter per day) per day compared to 116 km/mmscmd of India, Assocham said in its paper on gas sector ‘A Comparison between India and Pakistan’.

The neighbouring country has created a 31,000 km distribution network to serve its domestic and commercial consumers in large locations, against the 11,000 km network that have so far been build in India to serve the needs of its consumers in limited pockets, the report said.

While Pakistan has nearly 1,600 CNG stations, India has 380. The gas throughput in Pakistan is 38 mmscmd per day as against 8.5 mmscmd gas in India.

The number of gas customers and vehicles running on CNG in Pakistan is about 19 lakh and 15.6 lakh respectively, while in India the number is 5.50 lakh and 4.60 lakh.

“The gas availability in Pakistan is undoubtedly quite large, compared to India but given the imports of gas and even its domestic availability in India, its pipeline network is extremely poor and the main reason attributed for the low and limited pipeline network in India is because this sector has been thoroughly regulated which has now been opened for competition,” Assocham president Venugopal Dhoot said.

The paper added that since the pipeline network in India does not reach out to most of the potential demand centres, a number of industrial projects, which would ideally run on gas, have to depend on much more costlier and more polluting alternative fuels.

“Thus the unmet gas demand in India is probably much higher than what is reported,” he said, adding India, “at present has only one major cross country pipeline in the form of Hizira-Bijaipur-Jagdishpur pipeline and there is estimated to be considerable unmet demand even in the states serviced by this pipeline”.

With the increased availability of gas, the country needs to gear up quickly to meet the increased requirement of cross country as well as regional and local downstream gas distribution networks, he said. — PTI


Riaz Haq said...

Here's a ranking of ease of doing business in South Asia that puts Pakistan well ahead of India:

Bangalore: The business environment in Pakistan and Bangladesh is far better than in India. According to the latest 'Doing Business Index', India's business environment has become tougher during the years compared to other nations.

Economies are ranked from one to 183 on the basis of their regulatory environment being conducive to business operations. All of India's neighbors except Afghanistan have been ranked better. While India is ranked 133, Pakistan is ranked 85th followed by Sri Lanka (105), Bangladesh (119) and Nepal (123).

"India is a consistent reformer for the past many years. A country's rank in the index is an average of 10 indicators, each with 10 percent weight in the index. India increased the number of judges in the specialized debt recovery tribunals, which led to a major removal of blockages. While India reformed in the area of insolvency, other countries reformed in more than one area," World Bank's Senior Strategy Advisor, Dahlia Khalifa told Economic Times explaining why India has been overtaken by other nations.

The 2010 Doing Business Report prepared by World Bank and the International Finance Corporation averages a country's percentile ranking on 10 topics, made up of a variety of indicators. This includes examining a country's business environment in terms of starting a business, dealing with construction permit, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

The first place is occupied by Singapore, which is followed by New Zealand, Hong Kong and the U.S.

To see complete rankings and report, click here: http://www.doingbusiness.org/EconomyRankings/"

Puneet said...

KARACHI: Foreign investment has fallen since the beginning of the current fiscal year, and collective decline in the first five months was by 25 per cent over last year.

The State Bank reported on Wednesday that Foreign Direct Investment (FDI) could not improve and fell steeply by 52 per cent.

The official data showed that the country received only $774 million FDI during the first five months of the current year against $1.620 billion in the corresponding period of last year.

This was a decline of over 52 per cent, reflecting erosion of confidence among foreign investors.

However, unlike FDI, the portfolio investment showed reverse trend as it improved against the net withdrawal during the last year.

According to the data, portfolio investment was up by 291 per cent during the five months. The inflows through portfolio during the period were $311 million against the net withdrawal of $162 million.

Analysts said the total investment, which slipped by 25 per cent, was indicative of the un-attractive situation of the local economy.

Analysts said the country’s three main sectors have lost attraction due to terrorism in the country which shook the confidence of both the local as well as foreign investors.

The telecom, oil and gas sector, including power sector and financial sector, became victim of terrorism as well as deteriorating law and order situation in the country.

Researchers of brokerage houses said the inflows would further decline in the coming months as new development has started taking strong grip over the country.

‘The country is facing terrorism but uncertainty regarding corruption cases against some sitting ministers, advisors and members of parliament have created uncertainty among the investors,’ said Abid Saleem, a researcher.

He said recent incident of capturing two oil wells by a former minister and his political affiliates has threatened investment in oil and gas sector.

‘The financial sector, including banks, have been showing bad performance as their profits are falling and non-performing loans are rising,’ said a banker, adding under these circumstances no foreign investment is expected to land in this sector. Banks are the prime target of financial meltdown which started from the United States and which has engulfed the entire world during one and half year.

‘We believe that only telecom sector is performing well and we can hope that more investment can come in this sector but certainly it has shrunk,’ said another analyst of brokerage house

Puneet said...

Mr Haq,
For your info..The rating of Pakistani debt is B3. This is a big indicator of Investor confidence you were talking about.

HONG KONG/KARACHI: Moody’s Investors Service said on Monday it has raised its rating outlook for Pakistan to stable from negative after the country received a bigger loan from the International Monetary Fund.

‘The stable outlook was prompted by the recent augmentation of Pakistan’s IMF program by $3.2 billion to more than $11 billion, and several ongoing policy and structural reforms’ Aninda Mitra, Moody’s analyst for Pakistan, said in a statement.

Pakistan obtained a $7.6 billion IMF emergency loan package last November to avert a balance of payments crisis. The loan was increased to $11.3 billion on July 31.

It received $1.2 billion from the IMF, the third tranche, last week. Pakistan’s foreign exchange reserves were $11.85 billion in the week that ended on Aug. 8, compared with $6.6 billion in November of last year.

The transfer of $1.2 billion will be reflected in this week’s data due on Thursday.

Mitra added that remittance inflows from overseas Pakistanis had remained strong.

Pakistan received a record $747.22 million in remittances from citizens overseas in July, compared with $627.21 million in July 2008, the State Bank of Pakistan said last week.

Analysts said the change in Pakistan’s outlook was a positive development but a rating upgrade would be needed to attract foreign investment.

‘This is a positive development and after the IMF’s additional fund, this was expected,’ said Mohammed Sohail, chief executive at Topline Securities Ltd.

‘However, Pakistan’s rating is still many notches below what is needed to attract foreign investment.’

Moody’s last action on Pakistan was in December when it changed its outlook to negative following a review for possible downgrade from its B3 rating. — Reuters

Riaz Haq said...

Puneet: Pakistan's ratings are being increased as it its economy shows signs of recovery, while India has been warned that its ratings may be lowered due to its rising budget deficit.

International credit rating agencies Moody's and Standard and Poor have both raised Pakistan's credit rating and outlook, according to Bloomberg News.

S&P increased its rating on Pakistan’s long-term sovereign debt to B- from CCC+, six levels below investment grade and the same ranking as the Ukraine and Argentina. The outlook was maintained as stable.

“The upgrade reflects Pakistan’s improved external liquidity position, coupled with its successes in implementing corrective policy measures to rectify an unsustainable fiscal trajectory,” S&P said in a statement. “A narrowing current account deficit, helped by buoyant remittance inflows, and successive disbursals of the IMF and other multilateral loans have reduced the risk of near-term external payment difficulties for Pakistan,” S&P added.

Moody’s rates Pakistan’s foreign debt at B3, six levels below investment grade and the same ranking as Argentina and Bolivia. The country’s local-currency bonds are rated by Moody’s at the same level. India's credit ratings (BBB-/Negative/A-3) are higher than Pakistan's but the ratings may be lowered because of concerns about its rising fiscal deficit of 6.8% of GDP announced in the 2009-10 Budget.

Puneet said...

Mr Haq,

You had ommitted a part from your M2 highway story. This is isnt being objective. I am posting your ommitted part. Although I can clearly make out why you did that. This isnt being objective (something you proclaim so boldly in your blog )

" A fence keeps out the donkeys and horse-driven carts.

Service centres are almost indistinguishable from any service station in the West, aside perhaps from the spotless mosques.

The real Pakistan can be seen from the car window, but in the distance. Colourful painted lorries still ply those roads. Dirt poor villagers toil in brick factories, farmers on donkey carts go about their business.

Of course, four hours of mundane travel is quite enough.

Arriving in Lahore, the road suddenly turns into South Asia once again. Dust seeps through the open car window, endless honks sound, beggars knock on car windows. The driver begins again his daily, dangerous battle for road supremacy.

As Pakistan unveils itself in all its vibrancy, it is exciting to be back. But you can’t help feel a tinge of regret at having experienced, briefly, a lost dream.

‘Motorway good — but Pakistan,’ Noshad said at the last petrol station before we entered Lahore.

‘Terrorism, Rawalpindi,’ he added, referring to the latest militant attack on a mosque in the garrison town which killed dozens. —Reuters "

Riaz Haq said...

Puneet: "You had ommitted a part from your M2 highway story. This is isnt being objective."

As far as I am concerned, the following sentence of the Alistair Scrutton's M2 report is the most important:

"It puts paid to what's on offer in Pakistan's traditional foe and emerging economic giant India, where village culture stubbornly refuses to cede to even the most modern motorways, making them battlegrounds of rickshaws, lorries and cows."

To me, "puts paid" always means "case closed" to the argument comparing the village-like environment of India to the much more modern and urbanized Pakistan.

Riaz Haq said...

For some of the posters here, let me share with you what Sean-Paul Kelly, a traveler-blogger, thinks of India, based on the recent NY Times story on "India's Innovation Envy":

Indians, it seems, aren’t lacking in the hyper-patriotic, and India certainly doesn’t lack its boosters in the West. Alas, some folks are beginning to see the light:

"BANGALORE, India — In the United States and Europe, people worry that their well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to India.

People here are also worried about the future. They fret that Bangalore, and India more broadly, will remain a low-cost satellite office of the West for the foreseeable future — more Scranton, Pa., in the American television series “The Office,” than Silicon Valley."

Stephen Roach of Morgan Stanley-Asia has called this wage arbitrage (Roach happens to be one of the few American economists that gets it right on India). And Americans are right to worry about this. It’s put downward pressure on services as varied as call-centers and tech support, to financial news reporting, X-ray and MRI interpretation and accounting. I would be especially worried if I were an accountant. But then again, many of the big firm accountants need not be worried, as their shilling game for Wall Street will protect them. For a time.

"Even as the rest of the world has come to admire, envy and fear India’s outsourcing business and its technological prowess, many Indians are disappointed that the country has not quickly moved up to more ambitious and lucrative work from answering phones or writing software. Why, they worry, hasn’t India produced a Google or an Apple?"

Wait a second. India does not have any technological prowess in the true sense of the word. After all, if they did, why would the Ambassador, a car model over fifty years old, made of the heaviest steel imaginable, and horribly inefficient be the best selling domestically produced car in India, still. The Nano notwithstanding.

"Innovation is hard to measure, but academics who study it say India has the potential to create trend-setting products but is not yet doing so. Indians are granted about half as many American patents for inventions as people and firms in Israel and China. The country’s corporate and government spending on research and development significantly lags behind that of other nations. And venture capitalists finance far fewer companies here than they do elsewhere."

Re-read that graph closely and you’ll begin to get an idea of the hurdles India faces. And hurdles it is doing nothing, absolutely nothing to overcome. Instead of using its domestic capital for something like infrastructure building, local elites continue to siphon it all off and live behind huge fenced in compounds paying dalits pitiful, barely life-sustaining wages.

abhishek said...

////// After all, if they did, why would the Ambassador, a car model over fifty years old, made of the heaviest steel imaginable, and horribly inefficient be the best selling domestically produced car in India, still. The Nano notwithstanding./////

clearly mr haq you have no idea about india, ambassador is not the best selling car in India, common people and even politicians do not buy this car , the best selling car in india is maruti 800 and tata indica and not ambassador

Sandy said...

If Soviet Union can fail, so can Pakistan. Pakistan is not big enough.

Riaz Haq said...

Here's a London trader Manraj Singh talking about Pakistan's KSE stocks potential:

Taliban and credit crunch or not, I expect to uncover some absolute bargain investments in this country. Three Pakistani companies that I have had my eye on have shares that trade in London. I think that they are worth a closer look.

Two long-term plays on Pakistan’s turnaround

United Bank(ticker:UBLS) is one of Pakistan’s top commercial banks. It focuses on servicing the corporate sector and has more than 1100 branches across the country. It has the big advantage of being backed by the colossally rich royal family of Abu Dhabi, the Al-Nahayans. The bank’s chairman, Shaikh Nahayan Mabarak Al Nahayan, is also the United Arab Emirates Minister of Higher Education and Scientific Research. So there doesn’t seem much chance of United Bank running into funding problems even if credit conditions in Pakistan stay tight.

Then there is MCB or Muslim Commercial Bank(ticker: MCBS). This is one of Pakistan’s biggest banks. It focuses on retail customers and has an impressive network of over a thousand branches and some 4 million customers. That makes it a good proxy for the long-term growth of the country’s middle class.

MCB is a highly professional organisation and it has attracted a big international shareholder base. Its biggest shareholder is the Malayan Banking group, which owns a 20% stake. And the Templeton emerging markets funds headed by investment bigwig Mark Mobius are also major shareholders.

Neither of these banks is dirt cheap right now. MCB’s share price has more than doubled since February and United Bank is up by some 80% over that period. They now trade at about eight times earnings. Not expensive, but not cheap either. But they are big, liquid companies and they will be among the first to benefit when international investors start looking at Pakistan seriously again.

Major banks are a good proxy for the performance of emerging markets. So as longer-term investments over the next 3-5 years, these two could pay-off massively.

And one punt for the brave…

On a completely different note is Lucky Cement(ticker:LKCS). Thisis Pakistan’s biggest cement producer. It is also a major exporter to countries in the surrounding region. It ships cement to neighbouring Afghanistan and India as well as to Ceylon and the Middle East. The region is still seeing strong economic growth and that has helped this company.

Lucky Cement has delivered impressive financial results . Despite the credit crisis, political upheaval and Taliban uprisings, profits have more than doubled this year. Its share price has risen by 148% since the start of the year. But it still trades at a reasonable five times earnings. It’s an interesting company, but not without risk. Its major cement production plant is located in the volatile North West Frontier Province where the Pakistani Taliban is active. Appropriately, its shares in Karachi trade under the ticker symbol LUCK. Here in London, its GDRs trade under the less ominous ticker symbol LKCS.

There’s more work to be done and I have other candidates I’m looking at. But I believe Pakistan will be an outstanding investment opportunity in the next few years. The time to get in is when investors fear to go there. That’s now.

I’ll get back to you when I have decided the best way to profit from Pakistan’s undervalued markets.

Till then, good investing.

Manraaj Singh
For The Right Side


Riaz Haq said...

By evacuating 250 Pakistani students, and the body one slain Pakistani, in an airlift from Kyrgyzstan, Pakistani government has demonstrated that it cares for its citizens abroad. I see this as a good sign of responsive democratic governance emerging in Pakistan. I hope there will be more signs of it to come, and I expect Pakistani media to continue to play their role in such matters.

Meanwhile, India's foreign ministry has said that 116 Indians - mostly students - were still stranded in southern Kyrgyzstan due to the fighting.

"Everything possible is being done to ensure the safety and well-being of the Indian nationals, within the constraints posed by the difficult ground situation," said the ministry in a statement.

Riaz Haq said...

Here's an excerpt from a recent piece, titled "Is Pakistan a failed state? No." by C. Christine Fair, professor at George Washington University and a visiting scholar at the Lahore University of Management Science, published in June 24, 2010 issue of Foreign Policy Magazine:

Once again, Pakistan looms as a country deemed to be "critical" in Foreign Policy's annual Failed State Index. But Pakistan is not a failed state, even though some of its institutions have declined in capacity, while others never worked well from the start. This year, Pakistan ranks tenth, below several African countries, Afghanistan, and Iraq, and above Haiti, which has recently been devastated by an earthquake.


In short, the Failed States Index is clearly only one side of the die. While sitting at a computer crunching numbers, even with expert input as the index apparently uses, the larger story is missed. Pakistan has its problems and enormous challenges lay ahead, but it is far from a failed or even failing state.

Riaz Haq said...

Here are some excerpts from a piece by David Pilling of Financial Times published recently:

(There have ben many a dire warning about Pakistan failing), yet Pakistan has survived. In its partial victories against Islamist militants it may even have made some kind of progress. It is all too easy to think of Pakistan as a failing – even a failed – state. But it might be better to see it as the state that refuses to fail.

To appreciate just how remarkable this is, cast your mind back to this dangerous year’s catalogue of fire and brimstone. First, following its victory in Swat, the army turned its attention on South Waziristan, bombarding militants in lawless areas bordering Afghanistan. Many considered that an important step, given the well-documented links between the Inter-Services Intelligence (ISI) spy agency and tribal militants, part of Pakistan’s quest for “strategic depth” in Afghanistan.

Second, and partly as a result of the army’s offensives, there has been a wave of counter-attacks on hotels, mosques and police stations. Last October, militants mounted a brazen raid on the supposedly impregnable headquarters of the 500,000-strong army. That led to alarm that men with beards and a less-than-glowing feeling towards America were getting perilously close to Pakistan’s nuclear arsenal.

Third, Pakistan has had to adapt to a dramatic shift in US policy towards Afghanistan. In December, President Barack Obama ordered a surge of 30,000 extra troops, a military intensification that has sent militants scurrying across the border into Pakistan. Worse from Islamabad’s point of view, the US president has committed to drawing down those troops from next summer, a retreat, if it happens, that would once again leave Pakistan alone in a nasty neighbourhood.

Fourth, the economic outlook remains precarious. Pakistan just about avoided a balance of payments crisis which, at one point, saw its reserves dwindle to just one month’s import cover. But respite has come at the cost of being in hock to the International Monetary Fund, which has extended some $7bn in loans. With tax receipts at a miserable 9 per cent of output, it is unclear how it will make ends meet.

As if these man-made calamities were not enough, Pakistan has been drowning in the worst floods in its history. At one point, no less than one-fifth of the country was under water.....

Remarkably it has not been. Why not? A partial explanation for Pakistan’s staying power is that it has become an extortionary state that thrives on crisis...

There are more benign explanations too. The strength of civil society has helped. Many refugees from the floods, like those from Swat, have found temporary shelter with the networks of friends and relatives that bind the country together. The army’s response to the floods has also underscored, for better or worse, the efficiency of the state’s best-run institution. Even the civilian administration, weak and discredited as it is, has clung on. If, as now seems plausible, Mr Zardari can survive, power could yet be transferred from one democratically elected administration to another for the first time in Pakistan’s 63-year history.

One should not overstate Pakistan’s resilience. The world is rightly alarmed at the mayhem that rages at its centre. But, if you care to look on the bright side, you might conclude that, if Pakistan can survive a year like this, it can survive anything.

Riaz Haq said...

Here is a recent Dawn report of international recognition of Pakistani woman scientist:

KARACHI: Pakistani Scholar Dr. Hina Siddiqui won the best “Oral Presentation Award” in the 11th Eurasia conference on Chemical Sciences. The international conference was held in Jordon from Oct.6 to Oct.10, 2010.

Dr. Siddiqui’s presentation was declared as one of the top three oral presentations in the conference, where a panel of experts decided upon the top three finalists. Another scholar from Peshawar also got prize in the event, where over 200 scientists delivered their presentations from 69 countries.

Eurasia Chemical Sciences conference was launched by three chemists in 1988 to foster network and knowledge sharing among the researchers of North and South.

Dr. Siddiqui is a PhD in organic chemistry and currently working as research officer at International Center for Chemical and Biological Sciences (ICCBS) at Karachi University.

When she was in school, she read an inspiring interview of Prof. Dr. Atta-ur-Rahman from Hussain Ebrahim Jamal (HEJ) Research Institute of Chemistry, University of Karachi, published in a well-known Urdu science magazine named Amali Science.

In that Dr. Atta-ur-Rehman said institutions are not made up from bricks and stones rather they are made up of people who have dreams and vision.

The sentence changed Siddiqui’s vision and she devoted herself to exploring the unknown. In 2005, she joined HEJ and started her Ph. D under supervision of Prof. Dr. Mohammad Iqbal Choudhary, during her Ph.D Studies she worked on the anti-oxidant properties of various chemical constituents, also she got UBF (Umear Basha Foundation) scholarship and went to University of Kansas for one year to excel in Organic synthesis research.

In the Eurasia conference, a shield and certificate was presented to Siddiqui and the organisers also waived the registration fee of upcoming 12 Eurasia Conference on Chemical Sciences which will be held in Greece in 2012.

Siddiqui told Dawn.com that it is not her prize but it is HEJ award because in HEJ every student gets a world class education and training to excel anywhere in the world.

Siddiqui said that HEJ is a great place to shine, because it is an equal opportunity institute where merit is the only criteria rather than gender discrimination. She urged the females to consider research as their career and vows to continue research and development in the future.

Riaz Haq said...

Here's a Dawn news report on US bipartisan panel recommending Pakistan's membership of G20:

WASHINGTON: The United States should seek Pakistan’s membership or at least observer status in major international forums, such as the Group of Twenty, a US task force recommended on Friday.

The panel – led by Richard Armitage and Samuel Berger, top aides to former presidents George W. Bush and Bill Clinton – notes that Pakistan’s presence in such groups would enable it “to connect with new power structures and familiarise it with emerging norms and responsible international behaviour”.

In a report released on Friday, the task force, which enjoys support of the administration, endorses the Obama administration’s effort to cultivate cooperation with Pakistan as the best way to “secure vital US interests in the short, medium, and long run”.

It recommends that this approach should include significant investments in Pakistan’s own stability, particularly after this summer’s floods. But in order for US assistance to be effective over the long-term, Washington must make clear that it “expects Pakistan to make a sustained effort to undermine Pakistan-based terrorist organisations and their sympathisers.” The task force warns that “two realistic scenarios” could force a fundamental reassessment of US strategy and policy.

First, it is possible that Pakistan-based terrorists conduct a large-scale attack on the United States and that the Pakistani government – for any number of reasons – refuses to take adequate action against the perpetrators. In the aftermath of a traumatic terrorist attack, it would be impossible for US leaders to accept Pakistani inaction.

The United States most likely would launch a targeted strike on Pakistani territory led by Special Forces raids or aerial attacks on suspected terrorist compounds. Even limited US military action would provoke a strong backlash among Pakistanis. Public anger in both countries would open a rift between Washington and Islamabad.

In a second scenario, Washington could reach the conclusion that Pakistan is unwilling to improve its cooperation on US counter-terrorism priorities. The panel warns that frustration over Pakistan’s persistent relationships with groups like Lashkar-e-Taiba and the Afghan Taliban at some point could cause the United States to shift its approach towards Pakistan.

In this case, Washington will have a number of points of leverage with Pakistan. It could curtail civilian and military assistance. It could also work bilaterally and through international institutions, such as the International Monetary Fund and the UN, to sanction and isolate Pakistan.

US operations against Pakistan-based terrorist groups could be expanded and intensified.
In the region, the United States could pursue closer ties with India at Pakistan’s expense.
“Sticks would be directed against Pakistan-based terrorists, but also against the Pakistani state, in an effort to alter its policies. The US-Pakistan relationship would become openly adversarial.”

But the panel warns that “Americans and Pakistanis must understand that these options carry heavy risks and costs. Both sides have a great deal to lose”.

Riaz Haq said...

In spite of all of Pakistan's genuine problems and "failed state" nonsense, investors have remained fairly sanguine about Pakistan's future prospects.

KSE-100 has outperformed Mumbai Sensex and other BRIC stocks over the last 10 years, 5 years and 1 year.

Pakistan's key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at 12022.46 on Dec 31, 2010, sgnificantly outperforming BRIC markets for the decade. Pakistan rupee remained quite stable at 60 rupees to a US dollar until 2008, slipping in 2008-2009 to a range of 80-85 rupees to a dollar. In spite of the currency decline, Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms. During the same period of 1999-2009, Mumbai Sensex index moved from just over 5000 points to close at 17,464.81.

If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $1000 today, while $100 invested in Mumbai's Sensex stocks would be worth about $400. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999 would get you about $300 today, while $100 invested in the S&P500 would be essentially flat at $100 today.

Last year, there was over half a billion $$ worth of foreign buying at KSE. And remittances by overseas Pakistanis are approaching $10 billion and rising every year.

Riaz Haq said...

A blogger calling himself "Israel's Financial Expert" makes a number of forecasts "11 Big Surprises" for 2010-2020 decade. These range from the collapse of Euro to overthrow of government in Beijing to Pakistan's economic collpase. Here is what it says about Pakistan:

4. Pakistan Collapses- The nuclear state fell victim of various terrorist groups who eventually succeeded in overthrowing the regime. The country falled into a bloody civil war. The U.S military, in a planned operation which was planned during the Bush years took control of the military facilities and dismantled them. The civil war affected India, which increasingly suffered from terrorist attacks throughout the decade. The collapse of Pakistan symbolized a new phase in the global "War on Terror" with the pro- American Gulf States becoming the main target.

Riaz Haq said...

Pakistan is not alone in being targeted by the doomsayers. Many others, including India's cheerleader Fareed Zakaria, have also been betting against the United States for decades. Here's an excerpt from a Time Magazine Op Ed by David Von Drehle:

Poor U.S. of A., forever in decline. the arrival of public theaters in Boston circa 1790 caused Samuel Adams to despair for the cause of liberty in the face of such debauchery. "Alas!" he wrote. "Will men never be free!" Charles Lindbergh fretted, "It seems improbable that we could win a war in Europe." Long before baseball, hand-wringing was the national pastime. We've never been virtuous enough, civilized enough, smart enough or resolute enough.

I was born into a country reeling from Sputnik, which revealed to the whole world that Americans are as dumb as rocks. John F. Kennedy had just been elected President, in part by bemoaning the "missile gap" between the mighty Soviet arsenal and our paltry few bottle rockets. "The United States no longer carries the same image of a vital society on the move with its brightest days ahead," Kennedy said in his final debate with Richard M. Nixon. That's the same Nixon who declared eight years later, "We are worse off in every area of the world tonight than we were when President Eisenhower left office." Hard to believe we could sink further, but we did, as the nightmare of Vietnam segued into the nightmare of Watergate, while the Japanese exposed the insufficiency of American enterprise. As I stumbled off to college, President Jimmy Carter was warning us about "a crisis of confidence ... that strikes at the very heart and soul and spirit of our national will." Thanks to our horrible schools, we were — according to the title of a major 1983 report — "A Nation at Risk." Then our family values went down the toilet.

You'd think America would be as washed up by now as the Captain and Tennille. So how come we're so much stronger than we were 50 years ago? Somehow, in the 235 years since we got started, Americans have weathered Boston theaters and Soviet science prodigies, violent lyrics and sex out of wedlock. We've survived a Civil War, two world wars and a Great Depression, not to mention immigrant hordes, alcohol, Freemasons and the "vast wasteland" of network television. We've dodged the population bomb, the coming ice age, acid rain and the domino effect. America is to nations what Roberto Clemente was to right fielders. The Pirates legend fretted endlessly about how poorly he felt and how sick he was — while vigorously spraying hits and vacuuming fly balls.

So don't reach for the defibrillator paddles or the rosary beads quite yet.

Read more: http://www.time.com/time/nation/article/0,8599,2056582,00.html#ixzz1Fk9nsZR9

Riaz Haq said...

UN Human Development Report 2010 shows that Pakistan ranks among the top 10 movers in HDI in the decade of 2000-2010.

See table 3 in Let's Talk Human Development.

Riaz Haq said...

Considering all the massive negative propaganda in the Indian and western media about Pakistan, it is interesting to see that some Americans are noticing the 50 Mbps broadband access build-out in the "failed state" of Pakistan by a state-owned telephone company.

In a provocatively titled post "Osama bin Laden Getting Faster Internet Than You Have: Pakistan’s 50Mbps Future", an American blogger Philip Dampier complains as follows: "While America’s heartland is being wired for 3Mbps DSL service, residents in Pakistan are getting ready for speeds up to 50Mbps thanks to a major broadband expansion in the country".

Riaz Haq said...

Here are some excerpts of an Op Ed by William Martin, US Consul General, published in The Express Tribune:

Perhaps showing the generation gap, I did not know that Pakistan has such a lively and active blogging community, with over three million citizen-journalists freely reporting on virtually every topic under the sun. Pakistan has one of the fastest-growing Facebook and Twitter-using populations in the world, with over four million Facebook users. Remarkably, the per capita internet access in Pakistan is between 10-15 per cent of the total population — more than double that of neighbouring India. Using even the most conservative estimates, 20 million Pakistanis are regularly online, or the equivalent of the population of four Singapores.

Pakistan enjoys tremendous freedom of information and online expression. As a representative of the United States, I am keenly aware of the vibrancy of that free speech every time I log in to my computer or pick up a newspaper. Although a bit bruised sometimes, I welcome it! By amplifying the diversity of voices, social media is making life a richer experience for us all. And this is possible because Pakistanis are using their freedom of expression every day, online. Blogging is reinforcing the backbone of democracy – freedom of speech – a freedom that is enshrined in the US Constitution.

In Pakistan, the freedom of the press was earned over time, through the sacrifices of its people, especially the sacrifices of those in the media community. Journalists and bloggers now play a central role in the effort to institutionalise these hard won freedoms.

We must never forget, the many journalists who have been killed or injured as they sought to report on the challenges facing us today. They take extraordinary risks to enlighten us with the truth. Nobody embodied this commitment more than Syed Saleem Shahzad, who was senselessly murdered trying to pursue this truth. All of us are diminished by his passing. But, there is no doubt that his work will continue and others will pick up the baton and carry on. It is up to each of us to honour his legacy and do all we can to support press freedom as a fundamental right to be enjoyed by everyone, everywhere. Blog on.

Riaz Haq said...

Here are some interesting excerpts from Anatol Lieven's "Pakistan-A Hard Country" on the role of religion and a description of Edhi Foundation as the essence of Pakistan's real civil society:

"Charities with a religious character tend to more favored and more trusted. It is also true of Pakistan's most famous charitable institution by far, Edhi Foundation, which is nonreligious; however, Abdus Sattar Edhi is himself a deeply religious man, known by the public at large as Maulana (a Muslim distinguished by his piety and learning)even though he is not a Muslim scholar and in fact greatly dislikes being called this.

There is no sight in Pakistan more moving than to visit some dusty, impoverished small town in arid wasteland, apparently abandoned by God and all sensible men and certainly abandoned by the Pakistani state and its own elected representatives- to see the flag of the Edhi Foundation flying over a concrete shack with a telephone, and the only ambulance in town standing in front. Here, if anywhere in Pakistan, lies the truth of human religion and human morality".

Another excerpt from Lieven's book:

"Levels of trust in Pakistani state institutions are extremely low, and for good reason. Partly in consequence, Pakistan has one of the lowest levels of tax collection outside Africa. On the other hand, charitable donations, at almost 5% of GDP, is one of the highest rates in the world".

Lieven quotes the following commandment (2:172) from the Quran:

"Righteousness is not that ye turn your faces towards the east or the west, but righteousness is, one who believes in God, and the last day, and the angels, and the Book, and the prophets, and who gives wealth for His love to kindred, and orphans, and the poor, and the son of the road, beggars, and those in captivity; and who is steadfast in prayers, and gives alms."

Riaz Haq said...

Labor force data from the World Bank for 2007 indicates that 23% of Pakistan's labor force has had tertiary (college) education.

This compares with 61% in the United States, 32% in the UK, 20% in Malaysia, 33% in Singapore and 17% in Sri Lanka.

It has no data for India or China.


Riaz Haq said...

Here's a Guardian story on nuclear weapons spending by several nations including India and Pakistan:

..For several countries, including Russia, Pakistan, Israel and France, nuclear weapons are being assigned roles that go well beyond deterrence, says the report. In Russia and Pakistan, it warns, nuclear weapons are assigned "war-fighting roles in military planning".

The report is the first in a series of papers for the Trident Commission, an independent cross-party initiative set up by Basic. Its leading members include former Conservative defence secretary Sir Malcolm Rifkind, former Liberal Democrat leader and defence spokesman Sir Menzies Campbell and former Labour defence secretary Lord Browne.
Pakistan and India, it warns, appear to be seeking smaller, lighter nuclear warheads so they have a greater range or can be deployed over shorter distances for tactical or "non-strategic" roles. "In the case of Israel, the size of its nuclear-tipped cruise missile enabled submarine fleet is being increased and the country seems to be on course, on the back of its satellite launch rocket programme, for future development of an inter-continental ballistic missile (ICBM)," the report notes.

A common justification for the new nuclear weapons programmes is perceived vulnerability in the face of nuclear and conventional force development elsewhere. For example, Russia has expressed concern over the US missile defence and Conventional Prompt Global Strike programmes. China has expressed similar concerns about the US as well as India, while India's programmes are driven by fear of China and Pakistan.

Pakistan justifies its nuclear weapons programme by referring to India's conventional force superiority, the report observes.

In a country-by-country analysis, the report says:

• The US is planning to spend $700bn on nuclear weapons over the next decade. A further $92bn will be spent on new nuclear warheads and the US also plans to build 12 nuclear ballistic missile submarines, air-launched nuclear cruise missiles and bombs.

• Russia plans to spend $70bn on improving its strategic nuclear triad (land, sea and air delivery systems) by 2020. It is introducing mobile ICBMs with multiple warheads, and a new generation of nuclear weapons submarines to carry cruise as well as ballistic missiles. There are reports that Russia is also planning a nuclear-capable short-range missile for 10 army brigades over the next decade.

• China is rapidly building up its medium and long-range "road mobile" missile arsenal equipped with multiple warheads. Up to five submarines are under construction capable of launching 36-60 sea-launched ballistic missiles, which could provide a continuous at-sea capability.
• Pakistan is extending the range of its Shaheen II missiles, developing nuclear cruise missiles, improving its nuclear weapons design as well as smaller, lighter, warheads. It is also building new plutonium production reactors.

• India is developing new versions of its Agni land-based missiles sufficient to target the whole of Pakistan and large parts of China, including Beijing. It has developed a nuclear ship-launched cruise missile and plans to build five submarines carrying ballistic nuclear missiles..


Riaz Haq said...

"Pakistan is too nuclear to fail", said Congresswoman Michele Bachmann, a US Presidential hopeful and a member of House Intelligence committee during the Republican Presidential debate last night.

The phrase "too nuclear to fail" actually originated from a piece written by Brookings' Stephen Cohen published earlier in 2011.


Riaz Haq said...

Here's a Daily Times report on Indian parliamentarian Mani Shankar Ayer's speech in Lahore:

Indian Rajya Sabha member Mani Shankar Aiyar has said that Pakistan is not a failed state and any strategy by India built on this assumption will be “dangerously misleading”.

“Yes Pakistan has its difficulties. But so do we. So any strategy built on the assumption that Pakistan cannot hold is misconceived, misplaced and dangerously misleading,” Mani Shankar said during a lecture at a local hotel on Wednesday.

The lecture was attended by noted scholars, media persons and peace activists.

Shankar said, “Pakistan’s nationhood is firmly anchored in history, civilisation and spiritual belief. Pakistan has one of the largest populations in the world. It has a high degree of political and philosophical sophistication. Pakistan has a resilient economy, a strong bureaucracy and a strong military, and extremely lively and informed media. How can it possibly be a failing state?”

He said Iran-Pakistan-India (IPI) pipeline was an excellent idea, which should have completed. “The idea of IPI pipeline was not merely aimed at meeting energy needs of India and Pakistan, but was to build confidence and trust between the two states,” said Indian writer and former diplomat.

He called for uninterrupted and uninterruptible dialogue between India and Pakistan. He admitted that the mindset of reconciliation was building faster in Pakistan than in India. He said that both countries could solve their issues through constructive engagement. “If there is no peace, there will be no prosperity,” he said.

He said that India needed to recognise that terrorism is a global issue. “Pakistan is a frontline state, with horrific consequences for itself. No state in the world has suffered as much from terrorism as Pakistan itself,” he said. He stressed the need to formulate a joint strategy to fight terrorism.


Anonymous said...

Dr. Haq,

I see that you have applied the Neologism of "Too Big to Fail" to Pakistan.

And perhaps there is some truth in this.

But have you considered the possibility that the reverse neologism of "Too Big to Bail" might also be applied equally well to our country?

I mean it has historically taken the West 2 billion$ of ODA money per year just to keep our Country from falling apart. And this figure excludes any special military aid that might have come via the US Defence Department during the Cold War and the War on Terror:


If Pakistan sinks into the morass of sectarian strife (Shia v/s Sunni, Barelvi v/s Deobandi, Mullahs v/s Ahmadis, Fundamentalists v/s Liberals, Older Secular Generals v/s Younger Islamist Colonels, TTP versus ISI, Pathan v/s Muhajir, Punjabi v/s Balochi etc), then it will take a whole lot more money to stabilize Pakistan.

Given the size of our Country (197 million people), pulling Pakistan back from the brink in the scenario of such sectarion conflict would need at least 250$ per capita ODA aid (see Yugoslavia for precedent) from the Western Nations.

This implies an annual ODA outlay of 50 Billion$ in Aid to Pakistan. This means that the US congress and the EU parliament would have to accept a hand-out of 500 Billion$ to Pakistan over a 10-year period of sustained aid. (Here I note that Zardari has already been going asking for 100 billion$ aid commitment)

It is hard to imagine any elected representatives in Europe/US agreeing to this kind of commitment to our country EVEN during feel-good boom-times in the West. When you consider the horrible state of Europe's economy and the deficit/debt problems the US is facing, it becomes clear that it almost impossible that such assistance will be forthcoming for Pakistan.

In fact, the West may decide that it is more cost-effective to let Pakistanis sort out all the issues themselves and simply limit itself to funding a 1-billion$ covert denuclearization program. For example, such a program could guarantee green cards and millions in cash to the top people in exchange handing over all of Pakistan's Strategic Assets. I wonder how many people are there in Pakistan who would choose to stay in the midst of all the conflict and chaos, rather than take the green card and the pot of cash and just leave.

Just some thoughts. I could be wrong in my analysis. Why don't you reflect on this issue of "Too Big to Bail" and write a blog article on it.

Thank you.

Riaz Haq said...

HopeWins: "Too Big to Bail"

Do you know the size of the bailout package for tiny Greece? It's $163 billion.

And have you heard the joke about the relationship between a lender & a borrower?

If you owe a bank $100,000 and you can't pay back, then you are in trouble.

But if you owe $10 billion to a bank and you can't pay back, then the bank is in a lot of trouble, and it'll try to arrange a bail-out for you!

The fear of contagion is a huge fear, just as fear of falling dominoes was during during the Cold War.

Hopewins said...

Dr. Haq,

Once again, you are right, but only partially.

(1) The Greek bail-out was not free aid money, but only the temporary transfer of Guarantee of Public Debt from the name of the Greek Government to the name of the European Common Facility. This was done merely to cap the run-away interest rates that the markets were asking for Roll-over of Greek Debt, especially since the Greek Public Debt to GDP ratio is very high and almost overwhelmingly of a Short-term nature.

In this context, Pakistan appears totally different. Our Government debt to GDP ratio is very LOW (as you yourself have commented in your blog). Our International borrowing are overwhelmingly LONG-TERM, and mostly from multilateral agencies (non-commercial debt) with TINY annual roll-over ratios. So it is clear that Pakistan will never face the problems that Greece is facing.

(2) Yes, the Euro countries did go out on a limb to help Greece. But that is because they have a common currency. If Greek were to default and exit the Euro, the currency ITSELF would come under question and destabilize all Euro-based Economies.

But consider what happened when the US was asked to help Greece. They refused point-blank. No elected American representative will vote for any assistance for Greece. They correctly say that this is structural problem created by the Euro-zone in which Greece is stuck with a common-currency and is unable to devalue itself out of trouble. Therefore, they insist that the Euro countries should take care of it internally. And this firm US refusal comes in spite of the fact that the EU is a major world trading block with extensive economic links to the US.

(3) Given all this, who will "bail out" our country? We do not share our Currency with anybody. We are not part of any major economic block. Our trade links to the rest of the world are miniscule. The GDP our "huge" Pakistan is about half that of "tiny" Greece. Our collapse may affect our immediate neighbors a little, but it is unlikely to have much of an effect on the rest of the World.

(4) The only reason the West fears a collapse of our country is their concern regarding the safety of our Nuclear Weapons. As I said, you can be reasonable assured that the CIA has worked out a contingency plan to evacuate all our nuclear materials in case of terminal instability. Such a plan will not only include raids by Special Forces but also the covert purchase of top Pakistani Officials in the Military, Bureaucracy, Clergy, Media and Political-circles.

Once the nuclear materials have been spirited away, what further interest could the West have in our country's future? The collapse of the USSR had little economic effect on the economies of the free-world because they were not a major trading partner. The only concern was their nuclear stockpile and the US learnt a lot about securing such materials from their experiences with the break-up of the USSR.

(5) One other point often raised is that, even without nuclear weapons, a collapsed Pakistan would become a training ground for terrorist groups. But to that argument, it might be replied:
(a) It already is one, as it supports many training camps for a variety of non-state-actor militant groups as now officially stated by US & Europe.
(b) Once the nuclear weapons are gone, the US can freely bomb terror camps even as they are being set-up, because unlike Afghanistan in the 1990s, the CIA is now watching every square meter of Pakistan from the sky (camera) as well as from the ground (spies).

So I am still not convinced that the idea that "Pakistan's collapse will send Shock-waves through the whole world" has any real merit. It sounds like an interesting idea in a superficial sort of way, but there does not seem to be much in terms of facts to back it up.

I could be wrong. I will leave you to fine-tune the theory of "Too Big to Bail/Fail"

Thank you.

Riaz Haq said...

HWJ: "The GDP our "huge" Pakistan is about half that of "tiny" Greece."

It's the other way around. In terms of what Greek GDP can buy, it's half the size of Pakistan's GDP. But that's not as important as other factors I lay out in my post....such as the size of the population, military size and capabilities, etc etc.

The other major factor is the impact on the region's and world's economy if Pakistan were to suddenly collapse and militants get control of its growing nuclear arsenal and the expertise of people working there. It'll make other international crises look like a picnic.

HWJ: "Once the nuclear weapons are gone..."

That's huge leap of faith. Very unlikely that US would be able to pull it off given how well secured and well defended and well dispersed such weapons are and the fact that the size of the arsenal is alleged to be the fastest growing in the world.

As to your talk about US buying off Pakistanis, you should remember what US Ambassador Anne Patterson wrote back on Sept 23, 2009 in a cable leaked by Wikileaks.

She said, "The Pakistani establishment, as we saw in 1998 with nuclear test, does not view assistance-even sizable assistance to their entities-as trade-off for national security".

Riaz Haq said...

Here are a few excerpts of an MIT doctoral thesis by Christopher Clary on future India-Pakistan conflict:

Conventional wisdom suggests that India has gained sufficient conventional superiority to fight and win a limited war, but the reality is that India is unlikely to be able to both achieve its political aims and prevent dangerous escalation.

While India is developing limited options, my analysis suggests India's military advantage over Pakistan is much less substantial than is commonly believed.
Most analyses do not account adequately for how difficult it would be for the navy to have a substantial impact in a short period of time. Establishing even a partial blockade takes time, and it takes even more time for that blockade to cause shortages on land that are noticeable. As the British strategist Julian Corbett noted in 1911, "it is almost impossible that a war can be decided by naval action alone. Unaided, naval pressure can only work by a process of exhaustion. Its effects must always be slow…."7 Meanwhile, over the last decade, Pakistan has increased its ability to resist a blockade. In addition to the main commercial port of Karachi, Pakistan has opened up new ports further west in Ormara and Gwadar and built road infrastructure to distribute goods from those ports to Pakistan's heartland. To close off these ports to neutral shipping could prove particularly difficult since Gwadar and the edge of Pakistani waters are very close to the Gulf of Oman, host to the international shipping lanes for vessels exiting the Persian Gulf. A loose blockade far from shore would minimize risks from Pakistan's land-based countermeasures but also increase risks of creating a political incident with neutral vessels.
The air balance between India and Pakistan is also thought to heavily favor the larger and more technologically sophisticated Indian Air Force. While India has a qualitative and quantitative advantage, the air capabilities gap narrowed rather than widened in the last decade. The Pakistan Air Force has undergone substantial modernization since 2001, when Pakistan exited from a decade of US-imposed sanctions. With purchases from US, European, and Chinese vendors, Pakistan has both dramatically increased the number of modern fighter aircraft with beyond-visual-range capability as well as new airborne early warning and control aircraft. Meanwhile, India's fighter modernization effort has been languid over the last decade. India's largest fighter procurement effort—the purchase of 126 Medium Multi-Role Combat Aircraft—began in 2001 and has been slowed considerably by cumbersome defense procurement rules designed to avoid the appearance of corruption.
The ground forces balance has received the most attention from outside observers, in large part because the Indian Army has publicized its efforts at doctrinal innovation, most often referred to under the "Cold Start" moniker. However, India's ground superiority is unlikely to be sufficient to achieve a quick victory.
The net result of this analysis is to conclude that India's limited military options against Pakistan are risky and uncertain. Pakistan has options to respond to limited Indian moves, making counter-escalation likely. At least in the near-term, Pakistan appears to have configured its forces in such a way as to deny India "victory on the cheap." Therefore, India might well have to fight a full-scale war that could destroy large segments of Pakistan's army to achieve its political aims, which would approach Pakistan's stated nuclear redlines. Such a conclusion should induce caution among Indian political elites who are considering military options to punish or coerce Pakistan in a future crisis. ...


Hopewins said...

Okay, we are now in 2013.

So let us review some of your statements from THREE YEARS ago....

1) December 15, 2009: "Pakistan's economy has more than doubled this decade, as has India's. The slowdown we are seeing now is about a year old and it may last another year or two, but the growth will return to Pakistan eventually"

UPDATE: Well? Has the growth returned? Is anyone (IMF, WB, GOP) predicting that it will return in the upcoming year? Or are you now stretching the term "eventually" to mean indefinite postponement?

2) December 15, 2009: “A Malaysian co has just decided to invest in building half a million low-cost homes annually in Pakistan during the next several years. Many Gulf investors are returning to Pak.”

UPDATE: Well? Exactly how many houses has this "Malaysian company" built in the 3 years since you wrote this? How many gulf investors have returned to Pak in the 3 years since you wrote this? Where is all this Malay-Gulf Investment? Can you show your readers where it is in the following table?

3) December 15, 2009: “I don't believe that 2-3% growth takes into account an additional 500,000 housing units a year to be built by Malaysians alone. It's about three times as many as the current total annual home construction.”

UPDATE: What are the IMF projections NOW that 3 years have passed and they have had time to "take into account" the 500,000 housing units a years to be built by Malaysians alone? Do you see any improvement in the IMF projections of our GDP growth rate? If not, why not?

4) December 15, 2009: “As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."--Mark Bendeich, Reuters, Jan 10, 2008

UPDATE: Right after that Bendeich fellow wrote that piece in January of 2008, the KSE Index COLLAPSED from a peak of 16,000 to a bottom of just 5,000 in January of 2009. Anybody who read his article and put money into the KSE Index then would have been wiped out within a year. Even today, 5 years after he wrote that piece, the KSE Index has just about managed to regain its peak; and that too only in terms of a local currency that has lost 50% of its value since then.

5) December 17, 2009: “Pakistan's ratings are being increased as it its economy shows signs of recovery, while India has been warned that its ratings may be lowered due to its rising budget deficit. International credit rating agencies Moody's and Standard and Poor have both raised Pakistan's credit rating and outlook, according to Bloomberg News. S&P increased its rating on Pakistan’s long-term sovereign debt to B- from CCC+, six levels below investment grade and the same ranking as the Ukraine and Argentina. The outlook was maintained as stable.”

UPDATE: What is our rating now? Leaving aside Ukraine & Argentina, what is Bangladesh's rating now? How many notches below Bangladesh are we? Given that Bangladesh is a MUCH poorer country with more hunger than Pakistan, how did they manage to get a better credit rating?


The rosy statements you made 3 years ago of the coming prosperity around the corner turned out to be mere mirages. Do you think your credibility has increased or decreased in the last three years since you made all those rosy statements? You are now making similar rosy statements yet again. Will they also turn out to be mere mirages 3 years from today?

Riaz Haq said...

HWJ: "The rosy statements you made 3 years ago of the coming prosperity around the corner turned out to be mere mirages"

Pakistan gdp growth rate in 2009 when I wrote this post was 1.7% which more than doubled to 3.67% in 2012.


And, as I have explained in another post, the actual GDP and growth rates are higher than the official stats.


Riaz Haq said...

As of 2012, the World Bank data shows Pakistan's PPP GDP is $518 billion.

The World Bank data also shows that Pakistan's economy is now the 23rd largest in the world in terms of PPP, up from 26th largest in 2008.