The bureaucratic system is one.

The regulatory regime is another.

The provincial demarcation is at the head of it all.

If the fact that all current geopolitical fault lines are a product of British misgivings weren’t enough, their ‘divide and rule’ strategy and the Radcliffe Award gave Pakistan its four units while fomenting territorial disputes in the remaining two.

I focus on the four units in this piece which were drawn for a country of 30 million which grew overtime, exploded rather, to carry more than two hundred and forty as of now.

For example, Punjab governs more people than Germany, France, or the United Kingdom. It does so from one secretariat in Lahore. Sindh runs a megacity of almost twenty five million and a feudal interior from the same building.

Almost everyone who matters in Pakistan, agrees the map with four units is obsolete.

Consequently, the path to a prosperous Pakistan necessitates the creation of new provincial units.

But no one is willing to pay the price for creating this new map and delivering it in practice. The cost comes in three currencies.

The first is money. A conventional province needs a secretariat, an assembly, a high court, and a revenue board. If the 33 - 36 divisions are given the status of provinces, they’ll break the exchequer before the first one opens its doors.

The second is the finance formula. The National Finance Commission distributes federal revenue mostly by headcount. Apply that to thirty three units and the dense ones absorb the pool while the sparse ones cannot pay their police.

The third is representation. Every province holds equal seats in the Senate. Multiply the provinces and you rewrite the balance of power between the regions, which is the one thing the smaller provinces will not concede.

The number is wrong, but the direction isn’t. We need more provinces for better governance and improved socioeconomic conditions for citizens.

I argue that fifteen units is the point where the map stops failing and the budget still holds, and it sets out what building them would take.

This has been on my mind for sometime and I pen it down not with the intent of inflaming passions, but by objectively, and without sugarcoating, analyzing how the provincial creation might go down, why it is needed, and what will it take to deliver (not in this order).

Defining the rules before the map

Drawing borders is the visible, easier part. The part that decides whether the new units function is the rule set that governs them.

Rausser, Swinnen and Zusman (2010) make the point directly1. Constitutional rules determine who gets access to a decision, what counts as a valid coalition, whether any party holds veto power, what default applies when agreement fails, and which proposals are admissible at all. Governance structures set the boundaries within which political bargaining happens. They call constitutions a subclass of institutions, the rules by which rules are made.

Their second finding is the one that should shape this debate.

Bargaining costs fall when decision authority sits with fewer agents. They rise when it sits with more.

Apply that to a fifteen unit federation. Every water dispute, every finance award, every seat at the Council of Common Interests gains eleven new claimants. Reaching agreement gets harder in proportion.

This sets the design constraint for everything that follows.

A workable division has to cut operating costs at the unit level without letting bargaining costs explode at the federal level.

Those two goals pull against each other.

The rest of this article is an attempt to hold both.

The case for fifteen provinces

Since the focus is on the four provincial territories as stated in the beginning, I will leave out AJK and Gilgit Baltistan from my analysis.

The one for one conversion is the simplest plan to draft and the hardest to fund. Every division becomes a province. Nothing has to be negotiated because nothing has to be chosen.

However, the cost follows the count.

Thirty three secretariats. Thirty three cabinets. Thirty three revenue boards. Thirty three high courts or benches with the judges to staff them. Even at the leanest build, recurring salary and establishment costs scale almost linearly with the number of units.

There is no version of the national budget that absorbs that.

The second failure is the one Rausser and Swinnen predict. Thirty three units puts thirty two new claimants at every finance award, every water allocation, and every seat at the Council of Common Interests. Agreement becomes arithmetically improbable.

Fifteen sits at the point where both curves stay tolerable.

Fiscal load stays inside reach because units can be built from existing offices rather than new ones, which section four sets out. Bargaining load rises but stays inside the range where agreements can be negotiated.

Fifteen also does the political work that thirty three does not need to do and four cannot do.

It breaks the concentration of provincial power without fragmenting the state into units too small to administer themselves.

The consolidation:

1. Punjab, four units.

   1. Central Punjab (Lahore, Gujranwala)

   2. North Punjab (Rawalpindi, Sargodha)

   3. South Punjab (Multan, Bahawalpur, Dera Ghazi Khan)

   4. West Punjab (Faisalabad, Sahiwal)

2. Sindh, three units.

   1. Karachi as a metropolitan province

   2. Lower Sindh (Hyderabad, Mirpur Khas)

   3. Upper Sindh (Sukkur, Larkana, Nawabshah)

3. Khyber Pakhtunkhwa, four units.

   1. Peshawar Valley (Peshawar, Mardan)

   2. Hazara (Abbottabad, Haripur)

   3. Malakand (Swat, Chitral)

   4. Southern (Kohat, Bannu, Dera Ismail Khan)

4. Balochistan, four units.

   1. North or Pashtun belt (Quetta, Zhob)

   2. Central (Kalat, Khuzdar)

   3. Makran Coast (Gwadar, Turbat)

   4. East (Naseerabad, Sibi)

Building the fifteen provinces for almost nothing

The cost problem disappears if the new units are assembled from offices that already exist.

Every division already runs an administrative headquarters, a police command, a treasury, and a tertiary hospital. Converting a division into a province is a matter of redesignation, not construction.

The courts follow the same method. Amend Article 192 so a High Court may exercise jurisdiction over more than one province, or so a permanent bench may be elevated to a High Court using its existing premises. The Rawalpindi bench becomes the North Punjab High Court. Multan and Bahawalpur merge into a South Punjab High Court. The existing pool of judges is divided by territory rather than expanded.

The legislature costs nothing if it is not separately elected. Existing MPAs transfer to the new jurisdictions. Cabinets are capped at five to seven via constitutional amendment.

Duplication is prevented by keeping some functions shared.

Golden opportunity for civil service reforms

The formation of new units also provides a once-in-a-lifetime opportunity to reform civil bureaucracy. Through a constitutional amendment, maybe the upcoming 28th, it can be mandated that all "Provincial Secretariats" in the 15 new units are staffed by lateral hires or performance-based contract employees, rather than the existing cadre of All-Pakistan Services (PAS/PSP). Once recruited, an up-or-out model similar to one seen in top global corporations, and even in the military, can be adopted for them to progress and eventually weed out the entrenched and archaic civil services currently in place. The benefits are immense. You won’t have a generalist administering public financial management, or doing as an agri expert - as is the case with PAS now.

The move will face resistance, similar to why such reforms failed in the past. Historically, senior bureaucrats neutralised reforms by relying on Article 240 of the Constitution, Section 3(2) of the Civil Servants Act 1973 (which protects terms and conditions from being "varied to disadvantage"), and staying protected through the Federal Services Tribunal (FST) and High Court stay orders.

If the 28th amendment includes an explicit non-obstante clause directly targeting Article 240 and the 1954 CSP Cadre Rules, something like:

The cadre monopolies can be abolished.

Article 212 can also be amended to strip the Federal Services Tribunal (FST) and provincial High Courts of jurisdiction over restructuring, post-abolition, and cadre dissolution. All service-related appeals are redirected exclusively to a specialized Administrative Restructuring Bench of the Federal Constitutional Court (FCC), pre-mandated to prioritize state efficiency over individual tenure rights.

Dealing with the pushback

Upon enactment, all Grade 19–22 officers of the PAS, PSP, and Secretariat Groups are declared part of a temporary "Federal Surplus Pool" under a modified Section 11A of the Civil Servants Act 1973. Officers are given a strict 180-day window to select one of three irrecoverable options:

A. Officers permanently transfer to one of the 15 new Provincial Management Services (PMS). They forfeit their federal seniority and federal inter-provincial transfer rights. They become local employees of that micro-province, with pay scales and renewals re-negotiated under 3-to-5-year performance contracts managed by the new Provincial Public Service Commissions.

B. They accept immediate voluntary retirement with an upfront lump-sum annuity payout.

C. Officers who refuse both Options A and B are placed in an unassigned "Surplus Pool" on basic pay, stripped of all perks (no official vehicles, no executive allowances, no discretionary funds). Under the amended Section 11A, if an officer remains unassigned in the Surplus Pool for 12 consecutive months, their service is automatically terminated with standard statutory severance, legally bypassing standard Efficiency & Discipline (E&D) inquiry processes.

The reforms are likely to bring massive savings. Pakistani civil servants fight for the monetizable privileges attached to administrative discretion and postings. With the sunset clause, and the induction of professionals on performance based contracts, the country can do away with multi-billion rupee land distribution schemes and post as well as pre-retirement sinecures for the civil servants.

Now the traditional response of the Pakistani civil service to any aggressive reform effort has been "work-to-rule" or file slowdowns. This includes deliberately withholding signatures to paralyze government functions until the political leadership backs off. Civil servants rely on Rules 8, 11, 12, 14, and 18 of the Rules of Business, 1973 to this effect. By exploiting the strict, mandatory consultation clauses in these rules, they legally delay files for months by creating endless cycles of inter-departmental queries.

To counter this would require amending the Civil Servants (Efficiency and Discipline) Rules 2020 alongside the National Accountability Ordinance (NAO) where deliberate file paralysis or organized administrative slowdown during a declared constitutional transition is reclassified as "Administrative Sabotage of the State" with any civil servant found guilty of doing so faces summary dismissal, asset freeze and imprisonment.

Money

Fifteen lean units cost little to build. They still have to be funded. This brings us to reforming the NFC formula. Not an easy task given the constitutional obstacles it may face.

The first one is Article 160(3A), inserted by the 18th Amendment, which prevents the provincial share of the divisible pool from falling below the previous award.

That share now stands at 57.5 percent.

If macro portfolios like higher education, energy, climate policy, inter-provincial transit return to the centre, the centre will need a larger share to run them.

The clause has to be repealed and the split moved toward 50/50, or a better proportion (left with an expert to judge).

The second obstacle is the NFC formula itself.

At 82 percent population weighting, Karachi, Central Punjab, and Peshawar Valley absorb most of the pool. Makran, Upper Sindh, Most of Balochistan and Southern Khyber Pakhtunkhwa aren’t left with the resources to run basic services.

The current formula is a population trap. A 15-province model requires shifting the financial weight from how many people you have to how poor your region is and how hard it is to govern.

Even with a shifted formula, certain micro-provinces (like Malakand or East Balochistan) simply do not have the industrial or agricultural base to survive on formulaic transfers alone.

If the creation of provinces is done via the 28th Amendment, it would need to establish a constitutionally protected Federal Equalization Fund. Modeled after systems in Canada and Australia, the center would withhold a specific percentage of the total budget (e.g., 3-5%) before the NFC is even calculated. This fund is distributed as direct, non-lapsing grants exclusively to provinces whose per-capita revenue falls below the national average. It acts as an economic floor, ensuring no province defaults on basic service delivery.

Then there is the issue of sustainability via revenue generation and tax collection. Fifteen units cannot survive on federal transfers alone. The amendment has to require them to raise property tax and agricultural income tax, the two bases the current elite refuses to touch, and dock transfers by an equivalent share where collection targets are missed. That forces local politicians to tax their own constituencies or run out of money.

The political consequences

Opposition to this design will be inevitable. Each major party loses something.

Pakistan Peoples Party loses Karachi and the revenue base attached to it, along with the unified Sindh platform. It might retain uncontested control of two rural units in Upper and Lower Sindh.

Pakistan Muslim League (Nawaz) loses the demographic weight that lets it form federal governments while losing everywhere outside Punjab.

Pakistan Tehreek-e-Insaf loses its populist wave as fifteen units make elections local, where patronage beats broadcast. Khyber Pakhtunkhwa splitting four ways confines its base to two of them.

There will be winners too, who will gain via new provinces and get a platform they had been denied for long.

Smaller parties like PML-Q and the Istehkam-e-Pakistan Party (IPP) gain Chief Minister offices across North and South Punjab.

Local clan elders and independent electables gain massive leverage across rural Punjab and Khyber Pakhtunkhwa.

Sub-ethnic and regional movements in the Saraiki belt, Hazara, and Malakand gain formal state recognition and local budgets.

Grand Democratic Alliance (GDA) gain governable territories in Upper and Lower Sindh.

This changes the lower and upper house dynamics too.

The Senate protects smaller provinces from Punjab. Twenty three seats per province, regardless of population, is the protection. Split Punjab four ways and it inverts: four successor units at twenty three seats each gives the former Punjab territory ninety two seats in a chamber of a hundred and sixty five, fifty five percent of the upper house.

If all four provinces are split simultaneously into 15 units (e.g., 4 Punjab, 3 Sindh, 4 KP, 4 Balochistan) and the 23-seat equal representation rule per province is preserved, the Senate balloons from 96 seats to 349 seats. To prevent this mathematical inversion from creating a constitutional crisis, the 28th Amendment cannot rely on Article 59 in its current form. It would need to be amended so that the equity and the number of seats at the senate remain harmonized.

The Council of Common Interests faces the same recalculation. Under Article 153, the CCI currently operates as an 8-member body: the Prime Minister, 3 Federal Ministers, and 4 Chief Ministers. It handles macro-inter-provincial friction points: water sharing (IRSA), energy grids, petroleum royalties, and census approvals. Expanding the table to 15 Chief Ministers plus federal members (19+ participants) turns an executive decision-making body into an unmanageable, permanent debate society. The solution to this is very simple. CCI has not been an effective body anyways. Article 154(3) mandates that the CCI must meet at least once every 90 days. In practice, successive federal governments routinely ignore this rule, delaying meetings for 6 to 12 months, particularly when contentious inter-provincial disputes are brewing. It has been a frequently bypassed and ineffective forum, redundant with the existence of other forums like the SIFC Apex Committee or the National Security Council which can perform its function just as well. A future amendment should consider the abolishment of this redundant body.

The National Assembly is a different mechanism. The National Assembly seat allocation (Article 51) relies entirely on population. Restructuring administrative boundaries does not alter demographic realities, it transforms how those seats function politically. It ends Punjab’s hegemony of forming the federal government, forces federal bargaining as the Prime Minister has to form a government of loose coalition, and supports better socio-economic outcomes as a consequence of that bargaining. In my opinion, the benefits outweigh the costs no matter what vantage point you are looking at from.

Gauging the impact and likely outcomes

The outcome is governed by two variables:

1. The fiscal space exists to fund the transition.

2. The political consensus holds long enough to legislate it.

1. Consensus with fiscal space (Managed Devolution): The Senate is capped, debt is apportioned by an independent commission, and shadow secretariats manage a clean 18-month handover.

2. Consensus without fiscal space (Paper Reform): The map changes, but macro-economic realities leave no money to fund the new secretariats. South Punjab and others become nominal provinces with no actual budgets.

3. Fiscal space without consensus (Division Without Division): The amendment fails because the smaller provinces refuse to reopen Senate representation. The demand for local governance does not disappear.

4. Neither (Systemic Paralysis): The map is forced through without settling Senate seats or dividing debt. The new units cannot meet payroll within a fiscal year. The upper house deadlocks over representation. The reform produces the paralysis it was meant to cure.

What would have to be true

The physical build cost of a 15-province federation is solvable, not impossible if the will to execute exists.

As outlined, existing commissionerates become secretariats, divisional benches become high courts, and municipal halls house new assemblies.

Nothing has to be constructed.

For these units to function, there are certain structural realities which will need to be addressed via any future constitutional amendment designed to make this happen. I won’t go into them again as they have already been discussed above.

Pakistan’s current geopolitical and economic fault lines are the delayed consequences of lines drawn poorly in the past. To draw new ones requires acknowledging a blunt reality: Maps can be drawn in a week. Federations are built in the ledger.

© 2026 Syed Ali Shehryar | Connect with me on LinkedIn | Subscribe to never miss a post

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Turkey announced a total trade ban on Israel in 2024. The oil still flows through its waters. So does the steel that feeds Israel’s weapons plants. This is the uncomfortable place to start, because the loudest voices against the war in Gaza belong to the same governments whose ports, pipelines, and defence deals help keep it running.

That gap between what Muslim states say and what they ship is the story. And it runs straight into Pakistan, which sits at the far end of the same chain, paying for a war it did not start and cannot stop.

What the Trade Data Actually Shows

Start with the numbers, because they are harder to argue with than speeches.

Israel’s crude imports from Azerbaijan rose 31 percent year on year in 2025 to 94,000 barrels a day. In return, Israel is Azerbaijan’s main arms supplier, the source of the drones and missiles that decided Baku’s 2020 war with Armenia. Oil goes one way, weapons go the other, and a shared fear of Iran holds the arrangement together. Turkey sits in the middle and collects the transit fees.

Turkey’s own conduct is the sharpest example of the double game. After Ankara declared its trade halt in 2024, tankers loading Azeri crude at Ceyhan kept turning off their tracking systems, signaling false destinations before quietly discharging at Israeli ports. Industrial goods took a quieter route. Turkish exporters relabeled shipments for the “State of Palestine,” routing them through West Bank markers where selected firms took a small commission to keep the paperwork clean. Exports to Palestine jumped more than elevenfold in a single month in mid-2024. Under that cover, Israel bought $171.1 million worth of Turkish iron and steel between January and September 2025, the same steel that has long made up the bulk of its arms-industry feedstock. Add roughly $868,000 in weapons and $877,000 in explosives over two years of war, more than half of the explosives arriving after the ban.

None of this is fringe activity. An Al Jazeera analysis of Israeli customs records found military-related goods from at least 51 countries kept entering Israel after the International Court of Justice warned in January 2024 of a plausible risk of genocide. Imports rose after that warning rather than falling.

Then there is the part that happens away from the cameras. Leaked United States Central Command documents, verified by the International Consortium of Investigative Journalists, show a “Regional Security Construct” running from 2022 to 2025. Under it, military officers from Bahrain, Egypt, Jordan, Qatar, Saudi Arabia, and the United Arab Emirates sat in confidential planning sessions with Israeli commanders, linked their radars into a shared air-defence picture, and trained together on how to find and destroy tunnels.

That is the first insight, and it is a small one only in the sense that it is rarely stated plainly. The war machine is not purely Western. It runs on Muslim oil, Muslim ports, and Muslim security cooperation, bought and sold by governments whose public position is the opposite of their trade data.

The Petrodollar Loop That Pays for the Bombs

Widen the frame and a pattern appears that is larger than any single shipment.

Gulf states are among the biggest buyers of American weapons on earth. Those petrodollar purchases fund the United States defence industry, which is the same industry that arms Israel. A recent $2 billion package to Saudi Arabia is one line in a long ledger. Some of the buying is direct: in 2018, Saudi Arabia reportedly bought more than $250 million in Israeli surveillance equipment through a United States-brokered deal, complete with training. The UAE contracted Israeli spyware. Money leaves the Gulf, weapons flow back, and the machine keeps turning.

The engine underneath it is oil sold through the Strait of Hormuz. Gulf carbon exports keep the global grid running, the revenue buys Western and Israeli hardware, and that hardware secures a regional order built to contain Iran. Energy out, dollars in, weapons back. The loop does not need anyone to believe in it. It only needs the shipments to keep moving, and they do.

This is the second insight, and it is heavier than the first. Individual sales can be explained away. The loop cannot. It is a structure, and structures outlast the outrage of any single week.

The Western Border: Where the War Reaches Pakistan

Here the chain closes on Pakistan, and here the argument turns from trade to strategy.

Pakistan spent the spring of 2026 doing something no one expected. It brokered talks between the United States and Iran, seated two enemies at one table for the first time in four decades, and put its prime minister’s signature on the June 17 Islamabad Memorandum of Understanding.

That rise is exactly the problem, seen from certain capitals.

A Pakistan that can mediate is a Pakistan that can act.

And a Pakistan that can act is a challenge to Israel’s push for an unchallenged regional hand.

The counter arrived on schedule. Between July 4 and 8, joint attacks by the Balochistan Liberation Army and the Pakistani Taliban killed 42 people, most of them police and soldiers. Pakistan launched Operation Shaban shortly after. The violence surged as the ceasefire it had brokered collapsed, not before it. Prime Minister Sharif named India as the paymaster. What the PM failed to acknowledge, either deliberately or otherwise, was that the “hexagon of alliance” and the Strategic Defence Pact (SDP) between India and UAE joins the interests of these three nations together. Where there is India, there’s likely to be overt and covert support of UAE and Israel. Now whether the Sharifs fail to recognize or acknowledge the nexus because of their own business interests in the country, prioritizing them over national interests and security, remains to be seen.

• For New Delhi, a Pakistan pinned to its western border cannot mass on its eastern one.

• For Israel, a Pakistan drowning in its own insurgency cannot broker peace or project weight in West Asia.

• For the money from (allegedly) UAE that underwrites the arrangement, a distracted Pakistan preserves the transactional order in which Western and Israeli weapons keep flowing. And their ports maintain their hegemony with no threats from Gwadar.

The purpose is a leash. Keep the security forces busy at home, and a rising mediator is quietly cut back down to a security problem. It is a low-cost, deniable way to neutralise a nuclear-armed state that had started to matter.

Pakistan’s Counter-Moves

Naming the trap is not the same as escaping it. Pakistan has room to move, and the moves are practical rather than dramatic.

First, hold the mediator’s chair. Access is the one asset no adversary can easily take. Pakistan should keep offering neutral ground to Washington, Tehran, Riyadh, and Ankara, and keep its defence pact with Saudi Arabia strictly defensive so Tehran still trusts it in the room. Being useful to everyone is the best insurance against being isolated by anyone.

Second, expose the money. If the funding network is real, then the answer is evidence. Pakistan’s intelligence services should build a documented case on the external capital flows to Baloch and Pashtun militants and take it to the United Nations. Turning a private grievance into a public, evidenced charge shifts the fight from the battlefield to the record, where deniability is harder to hold.

Third, cut the energy exposure. A closed Strait is an existential risk when 85 percent of your fuel runs through it. Pakistan should diversify crude supply away from the Gulf toward Central Asian overland routes, sign longer supply contracts, and treat energy redundancy as a security question rather than a commercial one.

Fourth, protect the remittance lifeline. Record inflows of $41.6 billion in FY26 hold the household economy together, and they sit inside the Gulf’s blast radius. Pakistan should agree emergency evacuation and money-transfer protocols with Saudi Arabia and Qatar now, before a shock makes them urgent.

Fifth, lean on the Chinese rear. Beijing has deep stakes in Pakistan and its own ties to Iran. Building overland trade routes through the China-Pakistan Economic Corridor that skip the Gulf’s contested waters is the slow, structural answer to a structural trap.

The Fault, and the Stars

Geography handed Pakistan the mediator’s chair and the arsonist’s border in the same breath. The stars did not arrange this. Governments did, with invoices and shipping manifests. Which means it can be undone the same way, one honest ledger at a time, if the Muslim world ever decides to read its own accounts.

Summary

Pakistan brokered a ceasefire between the United States and Iran, and then watched it fall apart in under a month.

Prime Minister Shehbaz Sharif signed the June 17 Islamabad Memorandum of Understanding as the mediator who got Washington and Tehran into one room.

By mid-July that deal was dead. Iran struck ships in the Strait of Hormuz, the US answered with a naval blockade and repeated air strikes, and Iran fired missiles and drones at all six Gulf states plus Jordan.

The collapse hurts Pakistan twice over.

It reopens an energy and money problem through the Strait, and a security problem along the western border, where coordinated attacks in Balochistan and the army’s Operation Shaban restarted just as the ceasefire failed. This is a signal I will be closely watching, given its timings. The Israel-India-UAE nexus could have just as well be behind the unrest on western front, enough fomented to keep Pakistan from making any meaningful moves in the global stage.

For the next 30 to 90 days, expect an on-and-off conflict that keeps oil prices high and the security bill heavy, short of a full regional war.

Pakistan’s shield is its strongest external position in years: record remittances of $41.6 billion in FY26 and State Bank reserves of $18.47 billion.

Its weak point is that both of those numbers depend on a calm Gulf, which is now under fire.

A Deal With No Enforcer

Pakistan’s biggest diplomatic win of 2026 has been overtaken by the fighting it was meant to stop. Sharif signed the MoU on June 17. Within four weeks his Foreign Ministry had put out two statements of “deep concern” as the agreement came apart. Iran hit commercial shipping in the Strait. The US reimposed a naval blockade and ran strike after strike. Iran then fired on every Gulf state and on Jordan.

Islamabad still talks to both sides, but what the past month proved is that Pakistan has no way to hold either party to a deal once they decide to walk. The reputation gain remains. The control it implied was never there.

The money channel has switched back on. On July 13 President Trump announced a 20 percent charge on all cargo moving through the Strait of Hormuz, then dropped it a day later after Gulf states offered US investment instead. The charge lasted a day. The fear it created did not.

Pakistan’s own Economic Affairs Division has already warned Parliament that fresh escalation raises fuel costs, pushes up prices, increases how much the country must borrow from abroad, and slows growth. The disruption feeds straight into the import bill, which rose by about $4.5 billion on the back of the war, in a country that buys more than 85 percent of its oil and gas through the Gulf.

Then came the western border.

Between July 4 and 8, joint attacks by the Balochistan Liberation Army and the Pakistani Taliban killed 42 people, most of them police and soldiers. Pakistan launched Operation Shaban shortly after.

Prime Minister Sharif blamed India for paying for and arranging the attacks.

Small Moves, Long Shadows

Two quieter items carry more weight than their size suggests.

On July 13 the US State Department opened a campaign to pull apart the International Criminal Court, framed around protecting Israel’s prime minister from prosecution with regards to the genocide he and his cabinet propagated in Gaza, for breaking every rule there was on UN Charter, and for gross war crimes the likes of which have not been seen. On its face this is not a Pakistan story.

Look one step further.

The second item hides inside that same EAD briefing to Parliament. The Karachi water project known as K-IV has been given only PKR 10 billion against a need of PKR 78 billion. That gap shows money being pulled toward a high-alert border and away from delivery on the ground. Slower water and power projects come first. A thinner cushion for the next shock comes after, while the shocks keep arriving.

The first hit is fuel, power, and prices. When the Strait is under threat, pump prices, electricity bills, transport, and food all move, because most of Pakistan's energy comes in through the Gulf. Over the next one to three months, anything with an energy cost inside it can climb again if the Strait stays contested. Over three to twelve months, the larger worry is the Gulf itself. Millions of Pakistanis work there, and the money they send home holds up ordinary household budgets. Their safety and their employers' stability now sit inside the danger zone. The reassurance so far is that these flows have held, reaching a record $41.6 billion in FY26 even after the war began in February.

Having said that, the timing still seems ripe for international investors. Pakistan's external buffers look better than they have in years. Reserves stand at $18.47 billion, and remittances hit a record. The exposure that still makes sense is the kind that can take an energy-price and currency shock, not the kind that leans on cheap imported inputs or calm Gulf shipping. The main risk has moved. The question is whether the region can stay short of a full war, and that is something Islamabad cannot decide. The honest base case is three more hard quarters, not a clean recovery.

The practical squeeze lands on energy cost, working capital, and imports. Any firm that runs on imported fuel, gas-linked power, or Gulf shipping should plan for higher and less predictable input costs and longer lead times over the next 30 to 90 days. Contracts priced on pre-July energy assumptions now carry margin risk. Firms with Gulf revenue or Gulf-based staff face a second layer of continuity risk on top. The safer setting is spare capacity over lean efficiency. Hold more stock of the inputs you cannot run without, and test your supply chain against a Strait closure that lasts several weeks.

What this all shows is that the fiscal space will get tighter, even as the headline reserve and remittance figures improved. The reason is that the security bill and the energy import bill are both rising at once, and they draw on the same rupees. Reform work and social spending now sit behind a larger security claim on the budget. The part that eased is access to foreign money. The part that tightened is the state's freedom to do anything by choice while running a hot border and paying an energy premium. Assume delivery timelines slip unless a project is ringfenced. K-IV is the warning already on the page.

What Could Happen Next

1. A long asymmetric standoff. Neither side wins outright. The US and Israel keep striking Iranian sites, and Iran keeps hitting US bases across the Gulf with cheap drones and accurate missiles while holding the Strait half-shut. Ship traffic stays thin and oil stays expensive.

1. A wider spillover. If US and Israeli strikes go deep enough, Iran could shift from hitting military bases to hitting the things Gulf societies cannot live without, their desalination plants and their oil and gas terminals. The Gulf states depend on desalinated water to survive. Damage there would empty cities and halt energy exports at the same time.

1. A bargain. If Washington tires of the daily cost and the pressure of a coming election, it could deal directly with Tehran over Israel’s objections: blockade relief and sanctions easing in return for Iran pulling back from the Strait and diluting its enriched uranium under inspection.

What to Watch

1. Does the Strait of Hormuz stay contested or reopen to normal traffic? This is the single largest channel into Pakistan’s economy. Energy price, import bill, currency pressure, and inflation all run through it, and they reach people and businesses first. If traffic normalizes, the base case softens toward a shock that fades. If restricted traffic runs past 30 days, the base case hardens and the import damage compounds.

2. Do Gulf remittances hold or start to slip? This is Pakistan’s main buffer and its main offset to a chronic trade gap. Watch the next month or two of State Bank data and any reports of Pakistani job losses or evacuations in the UAE and Saudi Arabia. A clear drop would pull away the support now holding the external account together, and would move the investor call from selective to defensive.

3. Does Operation Shaban stay contained or does the border violence widen? This sets the security bill and the fiscal squeeze. If attacks stay episodic, the cost is heavy but bounded. If they grow into a sustained campaign, defence spending crowds out reform and delivery, and the political risk premium climbs whatever the external numbers say.

Concluding Thoughts

Now is the time to stop treating June’s ceasefire as a turning point and start hedging for a contested Strait and a costlier border through the autumn.

Pakistan spent the spring proving it could seat two enemies at one table. The summer will test whether a state can keep a peace it has no power to enforce, while the same fire it helped bank burns along its own western wall. Geography handed Pakistan the mediator’s chair and the arsonist’s border in the same breath, and this season it must sit in both.

— Syed Ali Shehryar

We created what we called a risk-based Compliance Verification Process (CVP) where regulators shouldered the burden of checking compliance after businesses begin.

ZTTS policy was officially launched in August 2022 with cabinet approval, political backing, and a phased implementation plan starting with a Lahore pilot. By February 2026, a new government relaunched ZTTS with similar promises about automatic approvals and instant business registration.

That gap reveals a recurring problem in regulatory reform across Pakistan. This post explains what we built, why it stalled, and what needs to change for policy design to survive implementation.

What We Built

The core innovation was shifting from universal pre-approval to risk-tiered treatment.

1. Low-risk activities (agriculture, retail trade, basic services, construction): NOCs eliminated entirely. Businesses self-certify compliance with local tax and business laws and begin operations immediately with zero government interaction.

   

2. Medium-risk activities (livestock feed manufacturing, light industrial production): Businesses receive provisional approval and start operations while government conducts ex-post CVP within 5 days (extendable to 10 days). If verification fails, provisional approval gets suspended until compliance is confirmed.

   

3. High-risk activities (refueling stations, heavy manufacturing, chemical production): Ex-ante verification required before operations begin. CVP completes within 15 days (extendable to 30 days). Regulatory approval granted only after successful verification.

   

We used the Pakistan Standardized Industrial Classification to assign risk levels based on environmental, public health, and safety impact probability and magnitude. This replaced the existing system where every business activity faced the same bureaucratic process regardless of actual risk.

Our design principle was simple: Government resources should focus on high-risk activities that pose actual threats. Low-risk activities should face zero friction. Medium-risk gets monitored through post-operation checks rather than pre-operation gatekeeping.

This sounds obvious. Implementation revealed it was not.

The second design element solved the coordination problem where investors needed NOCs from 8 to 12 different agencies before any regulator would grant final approval.

• Primary Regulatory Agency: Punjab Industries, Commerce and Investment Department (ICID) acts as single window. Investors submit one complete application pack to ICID. ICID coordinates with all concerned agencies concurrently rather than sequentially.

• Concerned Regulatory Agencies: Punjab Environmental Protection Agency (EPA), Civil Defense, Irrigation, Energy, Livestock, Forestry, Traffic Police, Explosives Department, and others. Each receives necessary information from ICID and conducts verification within committed timelines. ICID manages coordination, conducts joint inspections where needed, and takes responsibility for completing CVP.

Under the old NOC system, businesses spent weeks collecting certificates from multiple departments.

Under CVP, ICID collects required information once and shares it with concerned agencies who complete verification within policy timelines. The compliance burden shifts from investor to government.

We recommended building service desks at e-Khidmat Centers, Special Economic Zones, and Chambers of Commerce (starting with Lahore Chamber of Commerce and Industry) to help businesses submit complete application packs. This reduced back-and-forth document requests that normally drag approvals for months. This would be followed by digitalization of the whole process.

With a digital CVP, delivered through the Punjab Business Portal (e-Biz Punjab), investors would apply online, track application status live, and receive digital approvals without physical office visits. Executive dashboards for the Chief Minister, Chief Secretary, Finance Minister, Planning and Development Board Chairman, and ICID Minister would show CVP processing times, department compliance rates, and investor feedback. Regulatory agencies would publish bi-annual performance reports based on applicant feedback collected through the portal. Immediate feedback from investors prevents departments from gaming metrics through unreported delays.

That was the theory we sold to cabinet in 2021.

Why It Stalled

Standard assumption suggests that once a policy is approved and launched, success should follow.

But in Pakistan, overcomplicating processes is the prime fuel that sustains its bureaucracy and maintains their relevance.

So what happens after cabinet approval?

Departments need to issue internal notifications overriding their standard procedures. Officials need to accept post-approval risk without legal indemnity. Digital systems need to integrate across agencies with separate IT infrastructure. Political attention needs to sustain beyond the launch ceremony.

Then what happens after that?

New governments want separate political identities. Budget cycles shift priorities. IMF programs impose fiscal constraints affecting government hiring and IT budgets. Federal-provincial coordination breaks down when different parties control center and provinces.

Then what happens after that?

Voters and officials associate reforms with previous governments, and the reforms get quietly sidelined.

Departments revert to standard operating procedures.

Investors stop using the system because it does not work as advertised.

The next government relaunches the same reform with a new name.

ZTTS followed exactly this pattern.

Below, I share my observations on why the implementation broke down, and why the policy was launched again after four years but with no updates on what it did or did not achieve.

Breakdown 1: Legal Authority vs Cabinet Direction

Cabinet approved ZTTS in 2021/22. This gave political endorsement but did not automatically override legal authorities in the Punjab Environmental Protection Act, Punjab Factories Act, Punjab Local Government Act, and other statutes giving departments review authority.

Each department needed to issue formal notifications clarifying that CVP under ZTTS supersedes their standard NOC requirements for specified risk categories.

Why?

Because bureaucratic organizational identity revolves around exercising review authority.

Eliminating pre-approval without redefining departmental roles triggers existential threat.

Officials resist through passive non-compliance (issuing circulars that change nothing) rather than active opposition (refusing cabinet directions).

We had anticipated this and included “legal framework development” in the implementation plan. The plan was to promulgate regulations or provincial law codifying CVP and overriding conflicting departmental statutes.

This never materialized, leaving ZTTS as cabinet policy without legal force.

Breakdown 2: Risk Classification Capture

The policy success depends on keeping exception categories narrow. If environmental agencies classify 40 common industries as high-risk requiring ex-ante verification, only 10 low-risk businesses benefit from zero-time startup. ZTTS becomes meaningless for most investors.

We developed preliminary risk classifications with Punjab Local Government and Community Development Department showing low-risk and high-risk professions. The full risk catalogue covering all Pakistan Standard Industrial Classification categories required expert reviews by concerned agencies.

Departments have every incentive to expand high-risk classifications.

More high-risk categories means more review authority, more inspection budgets, more staff justification.

We planned continuous improvement of risk assessment approaches and catalogue updates. Without sustained political pressure and third-party expert validation, risk classifications inevitably expand toward maximum departmental control.

Breakdown 3: Managing Change with Digital Transformation

Technical implementation is easy. Punjab Information Technology Board (PITB) has the capability to build interfaces connecting ICID with concerned agencies.

Political implementation is hard.

Each department needs to agree to accept digital applications without requiring supplementary physical documents, in-person verification, or offline approval steps. Departments deriving informal revenue from in-person processing resist digital-only systems that eliminate opportunities for informal payments and expedited service charges.

Based on Punjab’s track record with the e-Biz Portal launched in 2020, I suspect ZTTS digital integration faced the same problem. The interface worked. Behind the interface, departments still required offline steps that undermine the digital promise.

Breakdown 4: Performance Monitoring Without Accountability

I designed mockups for executive dashboards and pushed for bi-annual performance reports based on investor feedback. The intent here was to create visibility for leadership, add transparency and broadcast accountability.

What I have come to realize is that visibility without consequences achieves nothing. If departments miss CVP timelines and nothing happens except an internal memo from ICID or Planning and Development Board, they continue missing timelines. If investor complaints get logged but never result in departmental accountability, investors stop filing complaints.

The missing element was public reporting. We needed Department A’s CVP completion rate published monthly on the Punjab Business Portal with traffic-light color coding (green for on-time, red for delays). Media, business associations, and opposition parties would use this data to create political pressure that internal dashboards cannot generate.

This required transparency commitments that most governments avoid because public performance data creates political risk when departments fail.

The Bigger Picture

ZTTS is not Pakistan’s first business registration reform or its last. It fits a pattern playing out across multiple sectors and all levels of government.

The cycle works like this:

Phase 1 (Policy Design): New government or external pressure triggers reform initiative. Consultants or technical teams provide international best practices. Inter-departmental working groups build consensus. Cabinet approves policy.

Phase 2 (Launch Ceremony): Chief Minister or relevant minister announces reform with foreign delegations present to signal business-friendly intent. Media covers. Business associations issue positive statements. Stock market responds favorably.

Phase 3 (Implementation Attempt): Lead agency (Punjab ICID, Board of Investment, SECP) builds coordination structures. Early applications receive high-level attention. Lead agencies publicize success stories. Staff escalate problems to political leadership for rapid resolution.

Phase 4 (Drift Begins): After 6 to 12 months, political attention shifts to elections, federal negotiations, budget cycles, or new priorities. Monitoring becomes less frequent. Departments revert to standard procedures. Exception categories expand. Informal requirements reappear.

Phase 5 (Silent Abandonment): The reform stays on the books without formal repeal while operational reality reverts to pre-reform normal. Investors who tried the system early stop using it because it no longer delivers promised results. New investors hear informal warnings that the official policy does not reflect actual process.

Phase 6 (Relaunch with New Name): New government or political leadership relaunches essentially the same reform with updated branding to establish separate political identity and respond to continued investor complaints. The cycle restarts.

ZTTS completed this cycle. Launched August 2022. Relaunched February 2026 with similar promises. Federal Virtual One-Stop Shop (VOSS) followed the same pattern in 2019. Punjab eBiz Portal in 2020. SECP Empowering Innovation Roadmap in 2024-2025.

What happens next? ZTTS 2026 will likely follow the same trajectory unless something breaks the cycle.

The pattern exhibited by ZTTS and similar policies highlight three implications for institutional reforms in Pakistan.

1. Design excellence does not equal implementation success. We built a technically sound policy aligned with international practice. None of this guaranteed implementation because policy design operates in a different domain than bureaucratic politics. Design assumes rational actors following instructions. Reality involves organizations protecting turf, officials avoiding personal risk, and informal systems operating parallel to formal policy. Reformers should spend less time perfecting documents and more time on political economy analysis: who loses from reform, how they resist, what compensation removes resistance, what accountability forces compliance.

2. Legislation beats cabinet decisions for durability. Cabinet approval gives authority during one government’s tenure. Laws create obligations surviving political transitions because repeal requires assembly votes and public debate. We included legal framework development in our plan. It never happened. The 2026 relaunch suggests the 2022 version faded because it lacked legislative embedding. Reformers should treat legislation as the implementation milestone, not cabinet approval.

3. Transparency creates accountability that internal monitoring cannot. Private performance tracking produces reports seen by leadership. Public performance data creates pressure from media, business associations, civil society, and opposition. Transparency is the mechanism converting policy intent into operational fact.

What Will Success Require

Pakistan produces excellent policy documents. Technical advisors from development partners provide international best practice designs. Inter-departmental working groups build consensus. Cabinets approve ambitious reforms.

Design assumes rational implementation. Reality involves organizational resistance, informal systems, and silent non-compliance.

Breaking this cycle requires treating implementation as harder than design.

It requires legislation over cabinet decisions. Public accountability over private monitoring.

Pilot testing over full rollout.

Revenue compensation over assuming departments will accept losses.

Legal indemnity over expecting officials to accept unprotected risk.

The next reformer in Pakistan faces the same choice. Perfect the policy document and hope for implementation. Or design for implementation reality by addressing incentives, embedding in legislation, building transparency, piloting before scaling, and creating accountability mechanisms that survive political transitions.

ZTTS will succeed or fail based on that choice, if it is implemented that is.

The regulatory creep only grew. Unlike India, which dismantled the licence raj in the 1990s, licences and licenses doing as quasi-taxes, registrations, NOCs and other similar instruments in Pakistan kept multiplying, because they fed the corrupt bureaucratic system that profited from them.

Take the arms license. Issued for up to five years with a heavy renewal fee, acquiring one meant several visits to the Commissioner’s office, where your application landed in a heap. Weeks passed. Then someone would explain the right way to “expedite,” which involved cash changing hands under the table. The amount decided how long the license took. Licences became alternate income streams for the bureaucracy, the single point of failure in Pakistan’s progress. If the aim was gun control, registration at the point of sale would have done the job. A police verification and fitness test could have solidified it would not be used for law breaking. If the aim was revenue, an import tariff would have sent the money to the state rather than to a baabu whose one accomplishment in life was passing an exam that handed him these privileges. The license did nothing to stop criminals, mafias, and terrorists from buying and using weapons. It is one example among many of how the bureaucratic machine enabled the scope creep of regulation.

The 18th Amendment and the devolution that followed only made things worse.

The results have been heavy. An exodus of Fortune 500 companies, a decline in foreign direct investment, and a fall even in local investment.

In 2020, when I got a seat at the big table to fix this, the work led to a whole programme, the Pakistan Regulatory Modernization Initiative (PRMI), and gave me the chance to write its Strategy and Implementation Plan (It is supposed to be housed in the link shared but surprise, the website is down!).

Six years later, that plan still sits unimplemented.

Six years on, the Board of Investment, the body charged with carrying out the initiative, did what every other layer of Pakistani officialdom does. Roadshows. Workshops upon workshops. Photo ops. Paper pushing. And constant delay of the actual objectives.

Someone, perhaps, noticed, and so SIFC was created in 2023. In September of that year I was deputed via FCDO’s technical assistance under their governance programme to SIFC as a consultant, helping set up its cadenced implementation, tightening committee meetings, and trying to keep it from stalling at the point of execution.

The aspiration behind SIFC was honest.

Three years on, it too appears to have missed its annual targets. Why? Because the ears at SIFC stayed tuned to the same bureaucratic music: committee meetings spent on paper pushing, on shuttling opinions from one ministry to another, all of it sheltered behind the Rules of Business 1973 and its tangled logic.

This piece sets out what I saw, what the data said when I drafted PRMI, and what it would actually take to break the pattern.

The picture in 2020

When I wrote the PRMI problem statement, the numbers told a plain story. Private investment in Pakistan stood at 11 percent of GDP. India sat at 29.1 percent, China at 35.2 percent, and Uzbekistan at 21.2 percent (World Bank, 2018 and 2019). FDI into Pakistan was 0.9 percent of GDP, against 1.7 percent in India, 0.99 percent in China (excluding Hong Kong and Macao), and 4.1 percent in Uzbekistan (UNCTAD, 2019).

The private sector pinned the blame on regulation. Dealing with registrations, licences, permits, and certificates in Pakistan was costly and overlapping across federal, provincial, and municipal lines (IFC Country Private Sector Diagnostic, 2021). Over 100 federal, provincial, and local agencies regulated business activity, each acting on its own.

The damage was sector-wide.

The cost showed up first in the two priority sectors the government and IFC had picked, automotive and pharmaceuticals, but the same regulatory paralysis spread across the economy.

In autos, the plan to push parts exports from $70 million to $1 billion and to electrify 30 percent of cars by 2030 stalled. Around 500 tier-1 suppliers stayed stuck on plastics, trims, and tyres, while drivetrains and engines came entirely from abroad, because local firms lacked the scale and technical help for high-cost precision work. Outdated EURO-II emission rules and the absence of basic safety standards locked Pakistani parts out of export markets, and labour productivity sat at a reported 30 to 50 percent against training that taught nothing of advanced methods.

In pharmaceuticals, the goal of growing exports from $300 million to $5 billion by 2025 ran into a web of over 51 federal, provincial, and local agencies (DRAP, the Anti-Narcotics Force, the Federal Board of Revenue, provincial health departments, and municipal bodies), where a single drug-price increase could take eight to twelve months to clear Cabinet. With prices fixed while the rupee fell, bringing new molecules to Pakistan became unviable, which drove out 12 multinationals in 2017, pushed another 24 to cut capacity, and left the sector around 95 percent dependent on imported active ingredients.

Information technology faced a different absurdity. The bureaucracy tried to govern software houses with production-era factory and worker-safety laws, letting inspectors penalize or seal IT firms. The Federal Board of Revenue kept serving tax notices even after the government announced income-tax exemptions for the sector, forcing firms to fight legal battles they should never have had. Restrictive foreign-exchange rules made it hard for freelancers and small firms to collect overseas payments, choking grassroots digital exports at the source.

Agriculture and food processing drowned in geography. Punjab ran 135 separate market committees and Sindh 71, so a food business that shifted jurisdiction or bought from a new area had to apply for a fresh license and certificate each time. On exports, the state never set up a single Foot and Mouth Disease free zone recognised by the World Organization for Animal Health, which alone blocked commercial meat exports to developed markets.

Tourism and mining hit the constitutional wall. Both became provincial subjects after the 18th Amendment, with provinces often refusing to cooperate on land and mining licenses, and No-Objection Certificates.

Logistics, ports, and shipping stayed paper-bound despite the Web Based One Customs system. When a vessel docked, businesses still had to hand physical documents to different departments, each demanding its own set of photocopies. Without a true electronic single window, delays piled up and supply-chain costs rose.

Textiles and leather, the largest export sector at over 60 percent of exports, took the energy hit hardest. Power shortages cut production by a reported 20 to 30 percent, forcing firms onto costly backup generators and pricing them out of global markets. Compliance certification for safety and environmental standards stayed riddled with corruption, and because major buyers avoid firms that breach child-labor and safety rules, Pakistan stayed shut out of higher-tier value chains.

The pattern repeated across all sectors. Manual processing, overlapping federal and provincial mandates, and outdated laws applied to modern industries.

The PRMI objective was simple to state and hard to do: raise private investment by cutting compliance costs, automating procedures, fixing standards, and adjusting incentives.

In 2022, after two years of sweat and toil, PRMI was launched in an extravagant ceremony at the Presidency. Its implementation plan published and distributed. More photos taken. A letter of appreciation handed. I wish I could write more concerning its tangible impact.

PRMI became a named pillar of the Pakistan Investment Policy 2023, designed to cut unnecessary Registrations, Licences, Certificates, and Permits.

Asking a ministry to review and shrink its own rule book is asking a tollbooth operator to remove the toll.

My PRMI Strategy and Implementation Plan proposed a regulatory guillotine and sunset clauses. The guillotine put every rule on trial at once and abolished any that could not be justified. Sunset clauses gave every rule an expiry date, especially those that predated Pakistan’s independence, so survival had to be earned on merits of protecting human, environmental and national security. The Standard Cost Model would put a rupee-and-hour price on every compliance burden that would remain. And a fully digital Pakistan Business Portal would act as a virtual single point of entry, taking the humans out of the middle. These foundational measures were designed to shift the burden of proof off the citizen and onto the regulator.

None of these were put into force.

Today, the plan I drafted in 2020 reads like a description of what is still missing. That is not a comfortable thing to write about one’s own work.

The reforms it set out, killing the manual processing of Registrations, Licences, Certificates, and Permits (RLCOs), ending overlapping jurisdictions, and stopping arbitrary enforcement, were never taken apart at the root. They were adopted in name and starved in practice.

On paper, the Pakistan Investment Policy 2023 folded PRMI in officially. The Board of Investment, as the designated lead agency, ran stakeholder feedback and a review of existing RLCOs across federal, provincial, and district levels. The Securities and Exchange Commission digitized company registration, and a Branch and Liaison Management Information System and an SEZ Management Information System were stood up. A National Steering Committee was sanctioned to map and review the stock of RLCOs.

The independent National Regulatory Delivery Office, meant to institutionalize reform by 2022 and take it out of the hands of the regulators it was policing, was not built.

The guillotine that would have cut the stock of red tape was not fired.

The Pakistan Business Portal that would have removed face-to-face discretion by 2023 did not replace the manual workflow.

Three accountability questions still have no public answer, and whoever picks this up should ask them on day one.

First, where is the Standard Cost Model baseline that was due by September 2021? Without it, nobody can state in rupees what six years of inaction cost the private sector, which is conveniently how the people responsible prefer it.

Second, what became of the roughly $10.6 million (about Rs. 1,600 million) earmarked for consultancies, project management, and the portal? Disbursed, idle, or quietly re-routed when the timeline slipped?

Third, did any province launch the proposed regulatory sandbox districts, and with what result?

The silence on all three is itself a finding.

What the reforms would have been worth

The plan set a medium-term target of cutting the regulatory burden by 30 percent. In the simulations I ran back then, a 25 percent cut in administrative burden produced an initial rise in GDP of around 1.1 percent and a long-run real GDP gain of 1.4 to 1.7 percent, through higher savings, investment, and capital build-up.

Separately, moving from the 75th to the 25th percentile on the cost of starting a business was associated with faster GDP growth in naturally high-entry industries, with the cited range running as wide as 25 to 50 percent a year in those specific sectors.

This was the prize that was left on the table.

The United States State Department’s 2024 Investment Climate Statement recorded that the Board of Investment introduced PRMI in June 2021, and that as of April 2024 only one project, the Reko Diq mine run by Canada’s Barrick Gold, had been designated a qualified investment under the new facilitation regime.¹ One qualified project in roughly three years is a thin return for the apparatus built around it. The same report describes an economy that came close to default in June 2023 and leaned on a $3 billion IMF Stand-By Arrangement from July 2023 to April 2024 to stay afloat.¹

The honest reading: the patient stopped bleeding, the underlying disease was managed, not cured.

Enter SIFC: single window, or the seventh door?

SIFC was sold as a single window to skip the red tape and pull approvals into one place. The structure tells a different story.

Pakistan already ran six other overlapping investment bodies. SIFC added a seventh layer of intent on top of a system already broken into pieces. Investors now read mixed signals from seven directions.

I watched the mechanics from inside. You would arrive at SIFC. A coordinator would connect you to another coordinator, who would connect you to someone in a line ministry, who would refer you back. You ended up circling dozens of staff and landing nowhere.

This is the one place where digitalization could have done real good.

A chatbot, a rules engine, an automated case tracker, anything that cut the human handoffs, would have removed the very friction SIFC was built to remove. None of it was built in earnest.

Three more problems sat on top:

1. SIFC could not force a province to comply on a devolved subject.

2. Speed over care. In a hurry to show wins, SIFC reportedly cleared several mining licences in Balochistan without the required Environmental Impact Assessments, which fed local opposition and echoed the early errors of CPEC.

3. A poor governance verdict from outside. The IMF, in its comprehensive Governance and Corruption Diagnostic Assessment, warned that SIFC lacked built-in transparency and questioned the sweeping powers and immunity granted to SIFC officials under the Board of Investment Act, arguing that overlapping mandates and opaque regulatory relaxations weaken governance.

A governance problem wearing a macroeconomic mask

The answer to why PRMI failed, and why SIFC has not been able to solve the problem it was created for, and why Pakistan in general fails to attract private investment points to one problem: governance in the hands of an archaic bureaucracy doing more harm than good.

The generalist bureaucracy.

The Central Superior Services (CSS) and the Pakistan Administrative Service (PAS) sit at the centre. This is a colonial-era jack-of-all-trades model. Officers rotate so often that expertise never builds. One 2025 PILDAT institutional review reported an average tenure of about 2.4 years in federal ministries, and fewer than 15 percent of federal secretaries holding advanced technical qualifications in the portfolios they ran.

The effect is a 21st-century economy managed by an 18th-century administrative habit.

Constitutional friction.

The 18th Amendment devolved power to the provinces, but the centre kept trying to steer investment through national bodies. Tourism, agriculture, and minerals are provincial subjects. So a federal body like SIFC has no legal power to order land acquisition or issue environmental No-Objection Certificates.

State capture.

The vacuum gets filled by elite capture. Politically connected families, cartels, bureaucracy which enables them and in turn benefits from them, hold large parts of the economy. They use manual licensing and frequent Statutory Regulatory Orders (SROs) to protect monopolies, which keeps foreign competitors out.

The wrong kind of money.

Because of all this, Pakistan attracts almost no efficiency-seeking FDI, the kind that lowers production costs and plugs a country into global value chains and exports. Data from the State Bank of Pakistan and the International Finance Corporation indicate that roughly 94% of FDI in Pakistan is market-seeking, aimed at domestic consumption in protected sectors such as power and telecom. Efficiency-seeking investment, which drives exports, represents less than 1% of total FDI, with the remaining capital heavily reliant on government-to-government inflows from China and the Gulf.

This is the trap. Market-seeking money does not build an export economy. It rents the consumer base and goes home with its returns.

The governance conundrum, rooted in bureaucratic corruption and driven by a non conducive political economy and elite capture becomes a key reason for why investors prefer men in uniform - no matter how unpopular this sounds.

Dictatorial periods in Pakistan drew 52 to 63 percent higher FDI than democratic ones, holding other factors equal.

The reason is worth sitting with, because I am not building a case for military rule.

Investors value predictable, centralized authority over a process that keeps reversing itself.

Under a military setup, the chain of command at least pushes decisions to a close. Pakistan needs an investment system that decides and sticks, whoever is in office.

How other countries broke the same wall

None of this is unsolved. Several states started where Pakistan is and got out.

The common thread across all five: none of them asked the bureaucracy to reform itself.

Each one changed the default rules, moved authority outside the affected offices, or both.

The paradox no one wants to name: who holds the pen

Remember, the people who draft the reform summaries and ordained to implement them are the same people who lose their monopoly if the reform passes.

The Pakistan Administrative Service (PAS) previously known as the District Management Group (DMG) of the civil services, works as the gatekeeper of state power. Any move to digitize or open senior posts triggers what one can fairly call an institutional veto, and the reform arrives dead on arrival.

Even Britain, which built the colonial steel-frame model, abandoned it decades ago. Pakistan’s version stayed frozen.

So how do you bypass a veto held by the people writing the rules?

And this requires taking aggressive measures without wimping out. Below, in my opinion and experience, are measures without which the macroeconomic vision for Pakistan will never be achieved.

1. Abolish the PAS, do not reform it.

Every plan so far tries to coax the Pakistan Administrative Service into change.

The Pakistan Administrative Service controls the federal and provincial governments through the Rules of Business 1973. These rules dictate that the Establishment Division manages all civil service postings. This structural design creates a closed loop of authority.

The bureaucracy maintains its hold through three main mechanisms:

• Generalist Control: Officers from the Pakistan Administrative Service occupy the top grade BPS 22 positions across all ministries. They manage specialized sectors like health, technology, and industry without subject expertise.

• Blocked Entry: The bureaucracy actively prevents the entry of private sector specialists into senior government roles to protect internal promotion pipelines.

• Resource Capture: The system secures extensive financial benefits for its members. The total federal pension liability reached Rs 1.055 trillion in the 2024 to 2025 budget.

Therefore, the cleaner move is a constitutional amendment ending the All-Pakistan generalist cadre and rebuilding the senior civil service from zero on fixed-term, sector-specific contracts. You do not negotiate with the gatekeeper. You remove the gate.

2. Carve out charter jurisdictions under foreign commercial law.

Investors require a predictable legal framework. You can provide this certainty by modifying the existing Special Economic Zones Act of 2012.

A workable reform involves three legal changes:

• Statutory Autonomy: Amend the law to remove the Special Economic Zones from the purview of the Establishment Division. Staff the zone authorities entirely with private sector specialists on contract.

• Dedicated Commercial Benches: Create specialized commercial courts within the existing provincial high courts. Staff these benches with Pakistani judges who have extensive corporate law backgrounds.

• Binding Arbitration: Mandate that all disputes default to international arbitration under the New York Convention. Pakistan has ratified this convention. This guarantees foreign investors legal certainty using existing international treaties.

3. Outsource the sovereign chokepoints.

Hand customs clearance, certain tax collection, and one-stop licensing to international firms on performance contracts with hard penalties. Several states have run customs through external agents when the home service was captured. It is an admission that the state cannot do the job, which is exactly why it works: the contractor has no pension, no posting cycle, and no cartel to protect.

4. Stop regulating where a credible foreign regulator already has.

Auto-accept US, European, UK, and Japanese certifications for pharmaceuticals, auto parts, and medical devices instead of duplicating them through domestic bodies that add delay and a bribe point. If a drug clears the US or European authority, it clears Pakistan by default. This guts a whole class of discretionary licences at a stroke.

5. Use the military’s execution capacity inside a hard time limit.

The fact that in Pakistan investors historically favoured centralized, predictable authority, is uncomfortable but informative. Rather than pretend it away, cage it. Grant SIFC a defined execution window, say 6 to 18 months, with power to clear approvals, then a legislated hard handover to a civilian regulatory office

6. Kill the macro uncertainty.

A hard currency board, or partial dollarization for trade and investment accounts, would remove the exchange-rate and policy-reversal risk that scares off long-horizon capital. No facilitation can compensate for a currency investors do not trust.

7. Sell residency and citizenship for investment.

Gulf golden-visa and Caribbean citizenship-by-investment programmes price a passport and a residency permit and bank the proceeds. Pakistan has the consumer base and the diaspora pull to do the same, and the revenue is immediate. The recent diplomatic gains support this.

8. Buy provincial consent rather than fight the 18th Amendment.

The constitutional deadlock will not yield to federal bluster. Offer the provinces a guaranteed share of project revenue and full transparency in exchange for ceding a single, binding investment approval, with deemed approval if they sit on a file past the clock. Make cooperation pay more than obstruction.

9. Pay the top tier private-sector money, strip their tenure entirely.

End the bargain where a bureaucrats cannot be fired. Replace it with high salaries that match the private market and at-will, performance-linked terms. Security of tenure is the asset the cartel actually protects. Take it away and the incentive to obstruct collapses.

10. Make reversal expensive and visible.

Lock the changes in through ordinances, legislations and notified SRO repeals, so undoing them requires a deliberate, public act rather than quiet inaction. Reform that can be reversed by a memo will be.

11. Anchor it to an outside commitment.

Tie the package to an external condition, such as an IMF programme benchmark, so the political cost of backsliding lands on the government from outside. This gives the head of government cover to hold the line when the bureaucracy pushes back.

A closing word

I spent six years inside this. I helped develop PRMI, supported the setting up of SIFC in 2023 , and watched both get absorbed by the system they were meant to fix.

A service that profits from delay will produce delay, however many roadshows it hosts. The way out does not run through better workshops. It runs through changing who holds the file and what happens when they sit on it.

The plan that would have prevented much of this was written, costed, and ready in 2020.

It fails for want of someone empowered to run it without first asking permission from the people it strips of power.

Give that authority to the right hands, with the leeway to bypass the gate rather than knock on it, and the timeline shortens from a decade of workshops to a handful of months.

Withhold it, and the next acronym will fail the way the last two did.

The Bottom Line

Pakistan’s fiscal fragility and its western insurgency are the same vulnerability seen from two angles. A state that owes 51 paisa of every tax rupee to creditors cannot fund the security response that would settle the Gwadar question. The actors who gain from Gwadar failing understand this. The budget and the Balochistan war are not two stories. They are one exposure, and Abu Dhabi, New Delhi, and Tel Aviv can read a balance sheet.

The new budget sets a 15.267 trillion rupee tax target and reserves 7.824 trillion rupees for debt servicing before a single school or road is funded. The economy grew 3.70 percent, the fastest in four years, yet poverty stands at 28.9 percent. The growth is import fed, which means it spends the very dollars the state is struggling to hold. While the books strain, Islamabad has taken on the most exposed diplomatic job in the world, brokering talks between the United States and Iran. That role has won praise in Washington and punishment from Abu Dhabi. The state is running two high wire acts at once, fiscal and geopolitical, and a fall from either rope ends both.

How to read the confidence calls in this brief

I assign rough probabilities to the load-bearing judgments so you can weight them yourself rather than take them on faith. High confidence means above 70 percent. Moderate means 40 to 70. Low means below 40. Where I cannot price a claim from open sources, I say so.

The assumptions this analysis rests on

Three assumptions carry the weight of everything below.

First, the UAE-India substitution is settled rather than reversible, meaning Abu Dhabi has decided India serves its interests better than Pakistan and will not walk that back if the regional temperature drops.

Second, Taliban tolerance of Baloch Liberation Army sanctuaries is a choice rather than an accident of weak border control.

Third, the current ceasefire between Washington and Tehran holds through the budget cycle. The third assumption is the fragile one. If the ceasefire breaks, the fiscal projections in this budget would require an immediate reevaluation.

How Will The Next 60 Days Look Like

The pressure lands on the people least able to dodge it. Documented businesses and salaried workers carry the new tax target because they are visible to the taxman while farms, shops, and property deals are not. That is a political choice, and it has a price.

Squeeze the only people who already pay, and you teach everyone else that registration is a trap.

Unrest is a high probability. The Tehreek-e-Taliban Pakistan threat in Khyber Pakhtunkhwa is active, instability runs through Azad Jammu and Kashmir and Balochistan, and the military is conducting daily counter-insurgency operations. The security apparatus has no slack left.

Abroad, everything hangs on a fragile ceasefire between Washington and Tehran. Pakistan imports 85 percent of its fuel from the Middle East, so a collapse in talks travels from the Strait of Hormuz to a Karachi kitchen in weeks. Fuel goes up, transport goes up, food goes up, and the street responds. The finance and interior ministries need flawless execution for two straight months. Neither has a record of it.

What Has Changed Or Is Changing

The Pakistan Economic Survey 2025-26 survey describes one country splitting into two economies.

Agriculture expanded 2.89 percent, led by livestock at 3.75 percent, while cotton and maize declined. Growth without breadth shows up in the distribution numbers. The Gini coefficient, a measure of inequality, widened from 28.4 to 32.7. Rural poverty sits at 36.2 percent against 17.4 percent in cities. The state lifted pro-poor spending to 4.66 trillion rupees to absorb the shock, and paid for it with borrowing. Total public debt climbed to 83,285 billion rupees.

Today’s relief is being bought with tomorrow’s revenue.

Industry tells the same story from a different angle. Large-scale manufacturing grew 6.1 percent on cheaper credit, but Pakistani factories cannot expand without imported machinery and raw materials, so imports rose 6.9 percent and the goods trade deficit widened to 27.9 billion dollars. Each point of growth drains reserves, which reached 22.6 billion dollars by mid May 2026. Literacy stands at 63.0 percent, with men at 73.0 percent and women at 54.0 percent. Half the country’s talent remains locked out of the formal economy.

The sharpest shift is external.

The United Arab Emirates detained and deported over 15,000 Pakistani workers, then demanded immediate repayment of a 1 billion dollar loan. Saudi Arabia stepped in with a 3 billion dollar deposit and averted a payments crisis. This, in my opinion, is the most concerning trend, and the one worth watching.

Why did a fifty-year friendship turn punitive in a fortnight?

The UAE assessment

Let me run this by laying out the competing explanations rather than arguing a single one and hoping it sticks.

Three hypotheses explain the Baloch insurgency and the UAE’s posture toward it.

The useful judgment sits in the combination. The insurgency is indigenous in origin and increasingly useful to a set of external actors whose interests have converged. The question worth anyone’s attention is who now keeps it alive, and at what level of deliberateness. On that question, I assess with medium to high confidence that the UAE is a willing financial beneficiary, and that it actively directs BLA operations with the help of Afghanistan as the staging post and India as the enabler. The distinction matters for what Pakistan can do about it, and I return to that.

Now the case for why Abu Dhabi sits in the frame at all.

At the outset, the UAE read the 2025 Pakistan-Saudi defense pact as a defection, and read Islamabad’s neutrality toward Iran as betrayal. The deportations, the loan recall, and the canceled airport deal arrived too close together to be coincidence. Money owed, jobs held, and permits granted have all become instruments of pressure.

The story runs further back. The UAE accepted the credentials of an Afghan Taliban ambassador as early as August 2024, becoming only the second country after China to do so. MBZ met Sirajuddin Haqqani in January 2025 to discuss bilateral cooperation and reconstruction. UAE Foreign Minister Abdullah bin Zayed spoke by phone with Taliban Foreign Minister Amir Khan Muttaqi in March 2026, with the conversation focused on the Pakistan-Afghanistan conflict, after which Kabul pledged its soil would never be used against Islamabad. That call is publicly documented.

The fact that Abu Dhabi felt it necessary to make that call, and that it was about the Pakistan-Afghanistan conflict, tells you something. Whether it was asking the Taliban to hold back or asking them to moderate is genuinely ambiguous, and I will not pretend the call resolves either way.

The UAE has 3.5 billion dollars invested in Afghan infrastructure, including an aviation company close to Abu Dhabi’s national security adviser that was given access to Afghan airports. It maintains direct, high-level relationships with Haqqani Network figures. The Haqqani network used front companies and Afghan expatriates to recruit and launder money through the UAE for decades. United States pressure pushed those operations underground after 2014, but they continued. The Haqqani network is now the Taliban’s interior ministry. The UAE now holds formal bilateral relations with that ministry.

The UAE's behavior across multiple theatres follows a consistent pattern. It builds commercial and security penetration into fragile states: Sudan, Yemen, Somalia, Afghanistan. It uses that penetration to extract rents, whether gold, ports, or airspace. When a regional rival threatens Emirati interests, those commercial relationships become pressure instruments.

Consider the squeeze on Pakistan in full. Before demanding repayment, the UAE shortened historical 12-month rollover terms down to single months and more than doubled interest rates to 6.5 percent. Pakistan cleared the 3.5 billion dollar facility through a structured payment schedule finalized by April 28. State-linked enterprises moved in parallel:

• Etihad Airways dismissed Pakistani personnel with as little as 48 hours’ notice.

• Over 15,000 workers, mostly Shia Muslims, were detained and deported from Dubai since April, leaving behind luggage and savings.

• NPR and Reuters detail thousands undergoing humiliating conditions in detention centers before forced removal.

Every move squeezed an already strained economy.

Why Gwadar is the organizing logic

Start with the economic fact, because the rest follows from it. Gwadar sits 87 kilometers from Iran’s border and close to the mouth of the Strait of Hormuz. Pakistani officials estimate it can contribute 18 to 25 billion dollars annually to Pakistan’s economy.

That last point matters for everything after it. The Jebel Ali Free Zone alone hosts over 8,700 companies from more than 100 countries and contributes approximately 23 percent of Dubai’s gross domestic product. Dubai’s entire post-oil identity rests on being the indispensable logistics node between Asia, Africa, and Europe. Gwadar, fully operational, erodes that position for good. You cannot negotiate your way out of geography.

Economic analysts have described Gwadar as another Dubai emerging on the world’s map and frame the rivalry as a silent economic war in the Gulf of Oman, with Pakistan, China, and Qatar on one side, and India and the UAE on the other. The framing appears in Western economic literature and reflects a straightforward reading of competing port interests.

A state whose entire economic model depends on being the region’s indispensable logistics hub has a structural interest in ensuring the rival hub never functions. It needs no conscious decision to destabilize Balochistan. The interest exists whether or not anyone in Abu Dhabi has ever said those words aloud.

The ideological glue binding Israel, the UAE, and India is a shared view that political Islam threatens each government’s survival. Underneath the ideology sits hard convergence on one geographic problem: the China-Pakistan Economic Corridor and Gwadar.

For India, a fully operational Gwadar gives China a naval and commercial presence 400 kilometers from the Strait of Hormuz, bypassing Indian maritime chokepoints and cutting China’s energy shipping distance from West Asia from 13,000 kilometers to 3,000. India has spent decades trying to encircle Pakistan through Chabahar and outreach to Kabul because a stable, China-linked corridor through Balochistan would redraw the subcontinent’s balance for decades. The BLA targets Pakistan’s army and Chinese interests, including Gwadar itself.

For the UAE, the threat is commercial. DP World signed 3 billion dollars worth of agreements with India’s Gujarat state to develop ports and terminals, signed in the presence of MBZ and Prime Minister Modi. Abu Dhabi is building an alternative logistics architecture in the Indian Ocean, one that rests on Indian geography in place of Pakistani geography. If Gwadar works, that thesis weakens. If Balochistan stays volatile, Gwadar stagnates, and the Gujarat corridor becomes more attractive to every shipping line making routing decisions.

For Israel, a stable, prosperous Pakistan anchored to China and Saudi Arabia through CPEC and the mutual defense pact shifts the regional balance against it. A Pakistan consumed by internal security crises and squeezed economically cannot build the Islamic NATO bloc that Israel’s prime minister named as the threat requiring a Hexagon of Alliances counterweight, a proposal positioned against the Pakistan-Saudi-Turkey-Egypt grouping, with the UAE, Bahrain, and Jordan on the opposing side.

The mechanism, and what it would take

Afghanistan under Taliban rule supplies the missing link. The UAE holds extensive financial and diplomatic ties to the Taliban regime. The Taliban regime provides, at minimum, passive sanctuary to the BLA, whose primary operational target is Gwadar. The UAE has a structural interest in Gwadar failing. And the UAE has a documented record, across Sudan, Yemen, and Somalia, of using financial relationships with armed non-state actors to pursue commercial objectives while keeping official deniability.

Understanding what the UAE does in Sudan makes the Balochistan inference more defensible, because the mechanism is identical.

The UAE imported 29 tonnes of gold directly from Sudan in 2024, up from 17 tonnes the prior year, with additional volumes routed through Chad, Libya, and Egypt, which analysts describe as exit points for RSF-controlled gold. Swissaid described these flows as confirming the UAE’s role as a major destination for smuggled conflict gold. The Sentry documented a 24 million dollar real estate portfolio in Dubai owned by family members and entities linked to RSF leadership, including sanctioned individuals.

The mechanism runs on financial infrastructure rather than direct weapons transfers, though those have been alleged. Dubai provides the laundering capacity, the legal residency, the banking access, and the commercial cover that lets a proxy sustain itself. The UAE issues no orders. It keeps the financial pipes open. The proxy finances itself and pursues its own objectives, which happen to align with Emirati interests.

Translate that to Balochistan. The requirement is financial networks in Dubai accessible to BLA leadership or their suppliers, combined with Afghan Taliban tolerance of BLA sanctuaries funded through those same networks. The UAE-Taliban financial relationship, now formalized through diplomatic recognition and banking cooperation agreements, creates exactly that infrastructure.

So the assessment holds at moderate to high confidence: the UAE is a willing beneficiary of the Baloch insurgency, a state whose financial networks let a proxy sustain itself without active direction. India’s role in BLA networks is better documented and more institutionally established, and that is what makes the chain workable. The partner with the operational history and the partner with the financial plumbing now sit on the same side of the ledger.

What Abu Dhabi cannot do

The UAE is not an unconstrained actor.

Its post-oil model depends on the same Hormuz traffic Pakistan does. The Iran war showed Jebel Ali and Dubai International sitting inside missile range, soft targets whose disruption hit Emirati supply chains directly. The gold-laundering conduct described above put the UAE on the Financial Action Task Force grey list from 2022 to 2024, a reputational cost it worked hard to shed and would prefer not to revisit. And the coercion strategy carries a base-rate problem worth taking seriously.

Economic coercion designed to force a middle power to realign has a poor track record. The closest case is Qatar under the 2017 Gulf blockade, when the UAE and Saudi Arabia cut land, air, and sea links to force Doha into line. The result was the opposite of the intent. Qatar hardened, deepened its alignment with Turkey and Iran, and emerged more independent than before. The blockade collapsed in 2021 with none of its objectives met.

I assess with moderate confidence that the UAE’s pressure campaign hardens Pakistan’s alignment rather than reversing it. That does not make the campaign harmless.

A hardened, cornered, economically squeezed Pakistan is a more volatile neighbor, which may suit some of Abu Dhabi’s partners more than Abu Dhabi itself.

The three branches ahead

Over the next 90 days, the situation runs down one of three paths.

In the base case, which I put at roughly 55 percent, the ceasefire holds and the squeeze continues at current intensity. Pakistan absorbs the deportation and reserve pressure, leans harder on Saudi and Chinese buffers, and the Balochistan war grinds on without decisive escalation. Watch the monthly remittance figures. A second consecutive month of decline signals this branch is deepening.

In the downside, roughly 30 percent, the ceasefire breaks. Fuel and remittance shocks compound, inflation returns to double digits, and street unrest meets a security apparatus already at full stretch. The trigger to watch is the Washington-Tehran back channel. A collapse there precedes the economic damage by days, which is your warning window.

In the upside, roughly 15 percent, Tehran and Riyadh cool their rivalry, and Abu Dhabi’s substitution logic weakens because a calmer Gulf reduces the value of the India tilt. The signal here is any quiet UAE re-engagement with Islamabad, the kind of back-channel outreach that reverses a coercion campaign before it is publicly abandoned.

The recommendation that follows holds across all three branches, which is the point of naming them.

Emerging Signals

Coercion only works when the coercer has a substitute, and the UAE now has one. Abu Dhabi has spent two years building a partnership with India grounded in commercial pragmatism and shared hostility to political Islamic movements. The Emirati leadership scrapped the Islamabad airport project soon after a state visit to New Delhi. It finances the Rapid Support Forces in Sudan and pursues territorial control in Yemen. Once a partner becomes replaceable, the old interdependence turns into a handle for pressure rather than a cushion against it.

Pakistan is responding by selling the one asset it still owns in abundance: position.

Islamabad delivered direct United States and Iran talks on April 11 and 12, the highest level contact since 1979. The military leadership then converted diplomatic standing into cash. A United States metals company signed a 500 million dollar mining agreement with the military, a sign that Islamabad now courts transactional, resource based western investment to replace fading Gulf patronage.

What This Means

For investors, the transmission channel that matters is remittances, which feed the current account and the rupee. UAE-sourced remittances were running near 824 million dollars a month before the deportations. A sustained drop pressures the currency and, by extension, the energy and import-heavy names on the KSE-100. A Hormuz closure is the tail risk that hits hardest: it spikes fuel costs, widens the import bill, and compresses margins across the listed industrial base at the same moment reserves are thin. If you think the bloc realignment is mispriced and Pakistan hardens toward China and Saudi rather than breaking, the asymmetric position is in assets exposed to a Saudi and Chinese capital backstop rather than Gulf-wide sentiment. Size it small and treat the ceasefire back channel as your stop loss. None of this is investment advice, and you should verify every figure against primary data before acting.

For businesses, the exposure is supply chain and contract terms. Firms routing through Jebel Ali or dependent on UAE-based logistics now carry a political risk that did not exist a year ago, since the same state that handles your freight has shown it will weaponize commercial relationships against Pakistani interests. The hedge is redundancy: a second routing option, even at higher cost, and contract language that does not assume Gulf goodwill. Anyone with Pakistani labor exposed to UAE residency rules should treat that workforce as suddenly fragile.

For the public sector, the lever is sequencing, and the order is the whole game. Reserve adequacy comes first, because the April episode showed a friendly facility can become a margin call overnight. Labor diversification comes second, with eyes open about its limits, which I set out below. A discreet predictability channel with Abu Dhabi comes third, aimed at lowering the cost of the next crisis rather than at reconciliation that is not on offer.

Citizens absorb the shock first.

Strikes on Qatari infrastructure disrupted liquefied petroleum gas supplies, so families face prolonged power outages in the hottest months. Renewed Gulf fighting would push transport and food costs through household budgets that have no cushion left at 28.9 percent poverty.

The one bright patch is digital.

Information technology generated a trade surplus of 2.91 billion dollars and telecommunications contributed 285 billion rupees to the exchequer, a path the government can keep open only by resisting the urge to over tax it.

A closing note on concentration risk.

The state registered 762,499 workers for overseas jobs in 2025, and remittances reached 30.3 billion dollars from July to March. The Emirati deportations targeted specific communities, turning identity into a tool of punishment for Islamabad’s neutrality. A country that earns its foreign exchange from one region has handed that region a veto over its foreign policy. The survey names 2025 the second warmest year in 65 years, so climate shocks will compound every fragility above.

What To Watch Out For In The Coming Week

Watch the finance bill debates, where opposition parties plan sustained protest inside the National Assembly. Track the withdrawal of tax exemptions for the former Federally Administered Tribal Areas, which risks inflaming a volatile region. Observe the western border, where the military claims 415 insurgents eliminated in Operation Ghazab lil-Haq. Follow the Washington and Tehran back channel, since any ceasefire breakdown hits Pakistani fuel prices within days. Watch for sudden regulatory moves on foreign direct investment.

Takeaways

Separate survival from any single relationship, but cost the separation honestly.

Pakistan needs to substantiate the role UAE is playing in its destabilization, and reduce its reliance on the state for labor exports. Formalizing labor corridors with East Asia and East Africa is the standard advice, and on its own it is close to useless in the near term. East Africa cannot absorb a meaningful share of two million Gulf-based Pakistani workers on any horizon under five years, and the wage differential is a fraction of what the Gulf pays, so remittance value per worker falls even where placement succeeds. The realistic near-term move is defensive: a contingency fund sized to a sudden remittance drop, a diplomatic floor under the remaining Gulf relationships, and diversification treated as a decade-long build rather than a crisis fix.

Second, in order to enhance the state’s role as the regional stabilizer, policy makers need to replace bilateral loans, which carry political conditions, with multilateral buffers, which do not. Build a credible tax on agricultural income and retail, because squeezing the documented sector yields revenue today and stagnation tomorrow. Keep the United States and Iran dialogue alive without alienating Riyadh or igniting sectarian anger at home.

Then test every assumption before events do. Under present conditions, there is no room for surprise.

— Syed Ali Shehryar

On Tuesday, Pakistan’s reserves stood at $16.4 billion. By 23 April, the government will have sent $4.8 billion out the door in debt payments, including $3.5 billion owed to the UAE and a $1.3 billion Eurobond that matured on 8 April. If no one replaces that money, reserves drop to roughly $12.8 billion, which falls below the floor the IMF requires.

This is happening in the same week Pakistan pulled off its most visible diplomatic win in years: brokering the US-Iran ceasefire.

The KSE-100 surged 9.32% in a single session. Global oil risk fell. Islamabad earned a seat at the negotiating table it has wanted for decades.

The base case for the next 60 days

Pakistan's diplomatic standing buys goodwill and modest energy cost relief, but the reserve gap becomes the binding constraint within 30 days unless a bilateral partner steps in.

Bilateral financial flows, the $800mn Etisalat payment, and potential sanctions relief that could unlock the Iran-Pakistan gas pipeline. The main buffer is Pakistan's simultaneous credible access to both Washington and Tehran, which no other actor in the region currently holds.

The main buffer is that diplomatic standing itself, which strengthens Pakistan's hand in funding conversations.

The main vulnerability is the $3.5 billion hole in reserves for which the push would be for truce to hold long enough for the negotiation talks in Islamabad to produce a written framework, giving Pakistan a narrow window to convert diplomatic capital into concrete economic concessions.

What Changed

Pakistan's diplomatic footprint is structurally larger this week than last.

Last year, when Field Marshal Asim Munir held a one-on-one lunch with President Trump at the White House, it was the first time a sitting US president received Pakistan's military chief without civilian counterparts present.

Iran's President Pezeshkian called PM Shehbaz Sharif on March 28, praising Pakistan's "supportive role for peace." On March 29, the foreign ministers of Saudi Arabia, Egypt, and Turkey flew to Islamabad and produced a five-point peace plan calling for an immediate ceasefire and Hormuz reopening. FM Dar then flew to Beijing; China endorsed the effort and issued a joint statement. Israel removed Iran's Foreign Minister and Parliament Speaker from its assassination target list reportedly at Pakistan's request.

Pakistan is now functioning simultaneously across the US, Iran, Gulf Arab, and China diplomatic channels. India, by contrast, has been structurally sidelined. PM Modi's visit to Israel right before strikes began destroyed New Delhi's claim to neutrality. That shift in relative position is durable regardless of what happens to the ceasefire next week.

The ceasefire itself is under immediate strain, and the downside is sharp. Iran submitted a 10-point plan that includes retaining physical Strait of Hormuz control, excluding "unfriendly" flag states, imposing inspections, and charging fees which US has not agreed to, and which carries legal risks under UNCLOS. But the US also struck Kharg Island, handling roughly 90% of Iran's crude exports, hours before announcing the ceasefire. The trust deficit is likely to have enforced this as a non-negotiable.

CFR notes Iran now holds Strait leverage it did not possess before the war began

Nonetheless, the ceasefire is more likely to hold than not. And that is because all three belligerents are spent.

The US faces domestic war fatigue and a strategic pull toward China competition. The US has depleted ammunition stockpiles in the region and overestimated air power's ability to force regime change.

Iran’s layered sanctions and subsidy pressure at home make a prolonged fight unaffordable.

Israel’s long range strike capacity is stretched, and its domestic politics are strained.

Each side chose to pause because continuing costs more. That gives the ceasefire a roughly 60% chance of lasting three to five years. It remains reversible at any point.

Formal talks begin at Islamabad’s Serena Hotel on 11 April. VP JD Vance leads the US side, joined by Steve Witkoff and Jared Kushner. Iran has sent Parliament Speaker Ghalibaf and FM Araghchi. Vance’s visit makes him the first sitting US Vice President in Pakistan since Biden in January 2011.

Pakistan’s broker position rests on a specific mix. It comprises 900 km of shared border with Iran, the world’s second largest Shia population, Major Non-NATO Ally status since 2004, no US military bases on its soil, and a direct White House channel that opened after the Pakistan-India standoff in May 2025. That combination lets Pakistan talk credibly to the US, Iran, Gulf states, and China at the same time.

Before the ceasefire, the Strait of Hormuz was effectively closed. On 1 and 2 March, zero ships passed through. MSC, Maersk, CMA CGM, and Hapag-Lloyd pulled out entirely. Flow dropped more than 90%. Roughly 10 million barrels per day of oil went offline. DP World shut down Jebel Ali after interception debris started a fire. Emirates SkyCargo, KLM, and Turkish Airlines suspended Gulf flights. Both air and sea freight through Dubai stopped at the same time for the first time in the city’s modern history.

This consequential yet structural decline of the UAE has opened real competitive space for Pakistan that was not available 30 days ago. UAE saw a 51% reduction the volume of property transactions (deal count) since March 28 when attacks on Iran began. Prices fell 4-7%. US financial institutions (CITI, Goldman Sachs) shut their physical operations in the UAE. Gold was trading at a $30/oz discount in Dubai as capital flees. On 28 March, Iranian strikes hit Emirates Global Aluminum’s smelter in Abu Dhabi and Aluminum Bahrain’s facility. EGA reported damage that will take 12 months to repair. Six workers were injured. These are hits to productive assets that will take quarters to restore even with the ceasefire in place.

More durably, IMEC, the India-Middle East-Europe Economic Corridor announced in September 2023, has been effectively neutralised. Saudi Arabia conditioned participation on Palestinian statehood, UAE infrastructure is now war-damaged, and Israel is globally isolated. IMEC was the one geopolitical infrastructure project capable of permanently locking in India's alternative corridor advantage over Pakistan. Its collapse removes that threat from the next planning horizon.

Pakistan's bilateral position with the UAE has also shifted. The UAE bilateral loan will soon be repaid, removing Abu Dhabi's primary financial coercion instrument over Islamabad at precisely the moment the UAE's own bargaining power is at a cyclical low.

While all this was happening, Pakistan, notably, was the first country (other than China and India-bound vessels) to cross Hormuz after the closure. A Pakistani oil tanker crossed on 16 March with Iranian permission. Malaysia followed on 26 March. A French ship crossed on 3 April.

Interesting signals that matter

1. Remittances fell 5% year on year in March, from $4.054 billion to $3.831 billion. The drop coincided with Gulf flight suspensions and port closures that disrupted worker and money flows. If this recovers as the Gulf normalizes, it was a blip. If it reflects workers leaving or remittance channels shifting away from Pakistan, the annualized loss runs $2 to $3 billion in foreign exchange inflows. That tightens the reserve position right when the UAE repayment is already draining it.

2. The KSE-100’s one day 9.32% surge (closing at 165,811, near its January all-time high of 170,700) shows that markets have priced in a peace dividend ahead of any fiscal confirmation. March inflation ran at roughly 7 to 7.3% year on year, above the State Bank’s 5 to 7% target. The SBP held its policy rate at 10.5%.

3. Hapag-Lloyd and MSC are actively rerouting or suspending Gulf-bound services, and DP World (which operates Jebel Ali) has opened emergency land corridors into Saudi Arabia to handle diverted cargo. For Pakistan, this is an opportunity. If major carriers treat Jebel Ali as a risk zone for the next 12-24 months and Pakistan takes no action to accelerate Gwadar's commercial throughput capacity or address Balochistan's political instability, that window closes without Islamabad capturing any diverted trade flow.

4. Pakistan is formally demanding the $800mn Etisalat payment while the UAE's negotiating power is at its weakest point in years. If Pakistan collects while this leverage window is open, it strengthens reserves without touching the external bond market. Every month of delay risks UAE financial actors recovering faster than property-crash data implies.

What This Means Now

People

Lower oil risk reduces the probability of fuel, electricity, and food price spikes over the next one to three months. If Hormuz stays open and oil prices stay down, inflation should ease toward the SBP’s target band.

The question for households: does the government use this breathing room to cut energy circular debt (the system of unpaid bills between power companies and the government that eventually shows up in everyone’s electricity tariff), or does it pass the benefit through as cheaper fuel? For the roughly 9 million Pakistani households that rely on Gulf remittances, any sustained disruption to worker flows hits daily budgets directly. The March dip deserves close attention.

Investors

The SBP policy rate sits at 10.5%. April debt service totals $4.8 billion against $16.4 billion in reserves. When the UAE’s $3.5 billion deposit leaves and if no bilateral partner (Saudi, Chinese, or other) replaces it, reserves breach the IMF floor and the programme faces complications.

Two separate forces are at work here.

1. The global force: lower Gulf war premiums, cheaper oil, and improved risk appetite across emerging markets help Pakistan passively, the same way they help every other frontier economy.

2. The local force: whether Islamabad uses this window to push through the IMF’s 11 structural benchmarks (tax reform, state owned enterprise cleanup, trade liberalization, special economic zone policy) determines if the external relief compounds or evaporates once global premiums tick back up.

Rational positioning: hold current exposure, do not add until the UAE deposit question resolves by 17 April, and hedge any new rupee positions against the reserve floor breach scenario. Bank equities, IT exporters, and short duration government paper remain the rational sectors. Avoid long duration rupee bonds and anything with direct Hormuz logistics dependence until insurance and surcharge costs clear.

Businesses

The immediate operational signal is that energy costs and logistics disruption risk have stabilised, but not resolved. CMA CGM reopened Gulf bookings on 11 March using overland routes. Saudi Aramco pushed Red Sea pipeline contingencies, with Yanbu becoming an alternative crude loading point. Jebel Ali resumed operations with booking restrictions through late March. War risk surcharges and elevated insurance premiums have not fully cleared.

For import dependent manufacturers and Gulf route exporters, operating costs remain higher than pre-war levels. CPEC Phase II (21 MOUs, roughly $8.5 billion) benefits from reduced country risk under the ceasefire, but the IMF’s structural benchmarks on state owned enterprise restructuring and special economic zone policy create regulatory uncertainty for contracts in those corridors.

Policy and development actors

Three constraints eased this week that did not ease last week: the UAE bilateral loan will be repaid; IMEC's neutralization removes India's corridor-competition pressure; and Pakistan has unprecedented simultaneous access to the US, China, Iran, and Gulf Arab states. Pakistan’s broker status gives it a stronger hand in IMF review discussions and multilateral lending conversations. The 11 new benchmarks create a tight reform window.

The Saudi Strategic Mutual Defence Agreement and CPEC Phase II MOUs show Pakistan locking in obligations to multiple partners at once. That gives it bargaining power and creates obligations that reduce future policy flexibility. Meanwhile, Transparency International Pakistan flagged on 9 April that the $800 million owed from the 2005 PTCL privatization (Etisalat/e&) has accumulated to roughly $6 billion in penalties, sitting uncollected while the government borrows at high cost.

The binding constraints that did not ease are inflation above the SBP target band, GDP growth too weak to broaden PSX gains beyond banks and a few large conglomerates, and a domestic sectarian fault line that limits how far the civil-military leadership can publicly commit to either side of the US-Iran divide without triggering protests with real fiscal and security costs.

The Iran-Pakistan gas pipeline is the single biggest structural energy fix available to the country and requires a dedicated cross-ministry task force now, while a sanctions-relief window may be opening in the Islamabad talks.

Any fiscal dividend unlocked by ceasefire-driven goodwill must be directed at infrastructure, tax-net expansion, and energy investment, not short-term consumption relief, or the window will produce a sugar high with no lasting structural change.

What to Watch Next Week

1. UAE deposit replacement. The first $450 million tranche falls on 11 April, with $2 billion on 17 April and $1 billion on 23 April. If no bilateral partner (Saudi, Chinese, or other) announces a replacement deposit by 17 April, reserves breach the IMF floor. Watch also for early signals: Gulf sovereign wealth fund liquidity allocations shifting away from Pakistan linked bonds would indicate the deposit gap will not be covered.

2. Ceasefire durability. Vance and Ghalibaf sit down on 11 April. Lebanon is the fault line: Israeli strikes on 8 April killed over 200 people, and Araghchi warned Tehran could walk away if strikes continue. If the talks produce a framework or extension, Pakistan's broker premium holds. If Lebanon triggers an Iranian exit, oil spikes and the peace dividend disappears.

3. Remittance recovery. March fell 5% year on year. April data (available mid-May) will show whether this was a logistics disruption or a structural shift. Gulf airline and port normalization rates are a leading indicator. If remittances stay below $3.8 billion for a second month, the SBP's current account assumptions need revision.

4. Etisalat $800mn payment: demand confirmed or delayed. Any public confirmation that Pakistan has formally initiated legal or diplomatic proceedings to recover the $800mn Etisalat outstanding payment, or alternatively a UAE signal of refusal or extended delay. Why it matters: Successful collection is a direct FX reserve positive without external bond issuance at a moment when Pakistan's leverage over the UAE is at a cyclical high. Delay or refusal would signal that UAE financial actors are recovering faster than the property-crash data implies, and would require revision of the "UAE leverage permanently reduced" thesis that underpins part of the bullish Pakistan positioning case.

Posture

Compared with last week, a rational person with Pakistan exposure should hold positions rather than add, treat 17 April as a binary trigger on the reserve question, and hedge new rupee exposure against the possibility that reserves breach the IMF floor.

Overall posture: Pakistan is selectively investable for the next 30 to 60 days, which means a rational investor should maintain net Pakistan exposure and focus on bank equities, IT exporters, and short duration government paper, while avoiding long duration rupee bonds and any sector with direct Hormuz logistics dependence until insurance and surcharge costs normalize.

Confidence Note

Taken together, the strongest signals this week are Pakistan's confirmed dual-channel access to both Washington and Tehran (Munir-Trump lunch; Pezeshkian-Sharif call; Saudi-Egypt-Turkey FMs in Islamabad), the UAE's structural weakening at a moment Pakistan holds zero bilateral debt leverage from Abu Dhabi, and the PSX's 9.32% single-day re-rating on falling Gulf-risk premium, so the base case is that Pakistan has entered a 90-day window of elevated diplomatic and financial leverage it has not held since the early 1970s.

The base case: Pakistan earns a modest diplomatic and energy cost uplift and faces a tight 30 day window where reserve adequacy becomes the binding constraint.

If this view is wrong, it is most likely because the ceasefire collapses before the Serena talks produce a framework (triggered by continued Israeli strikes on Lebanon and an Iranian walkout), which would push oil back above $100, force SBP tightening, and throw Pakistan’s IMF programme into emergency review, raising imported inflation by 3 to 5 percentage points within a quarter.

For the next 30 to 90 days, risk is skewed to the downside for importers and consumers (energy cost reversal if the ceasefire breaks), roughly balanced for investors (market optimism set against fiscal fragility), and modestly to the upside for policy actors, provided they convert diplomatic standing into concrete funding before the window shuts.

If the deposit gap is filled by 17 April and the Serena talks produce even a procedural extension, Pakistan enters May with the strongest diplomatic hand it has held in a decade and just enough reserves to keep the IMF programme alive. If either fails, the ceasefire becomes a line item in the history books, and the fiscal math takes over.

— Syed Ali Shehryar

• At midnight on April 2, a government notification raised petrol by Rs137 per litre, taking the pump price to Rs458.40.

• Seventy million Pakistanis already live below the poverty line, real wages have not moved in three years, and FBR (the Federal Board of Revenue, Pakistan’s main tax collection body) is Rs610 billion short of its nine-month target with no credible plan to recover before June.

• The government had no fiscal room to absorb any of the Gulf oil shock, so it passed the entire cost to consumers.

• For the next 30 to 90 days, expect elevated inflation, falling household spending, growing political pressure, and a probable third downward revision of the FBR target, all while Pakistan runs an active military operation on its western border.

• Pakistan’s relationships with Gulf states and China are currently providing the financing bridges keeping the economy afloat. Both depend on Pakistan appearing stable, and this hike is now putting that stability under direct pressure.

What Changed

The Price Shock and What It Reveals

Triggered externally and by internal mismanagement, Petrol rose Rs55 on March 7 and Rs137 on April 2 — a 43% cumulative jump in four weeks.

Oil prices jumped 20% in early March on Iran war fears, and Pakistan was identified as one of the most exposed economies in the world. But the reason every rupee of that shock landed on the consumer, rather than being absorbed by any government buffer, is a domestic failure.

FBR collected Rs9.307 trillion against a target of Rs9.917 trillion in the first nine months of FY26, leaving a Rs610 billion hole. March alone added Rs182 billion to that gap through three simultaneous hits:

• Import tax receipts fell Rs64 billion as Gulf war disruptions reduced trade volumes,

• LNG shortages shut fertiliser plants and cost Rs40 billion in lost revenue,

• Refunds issued by FBR nearly doubled, rising to Rs61 billion from Rs34 billion the month before.

The government’s response was to raise the petroleum levy, a charge that sits outside FBR’s books and does not count toward the official tax-to-GDP ratio.

With that, it has moved to cut development spending to give an artificial sense of fiscal stability.

FBR now needs Rs4.672 trillion in the remaining three months of FY26 to meet even the already-lowered target. No official or analyst has made a credible case that this is achievable.

The Structural Problem the Shock Exposed

The FBR gap did not start with the Iran war. FBR missed its FY25 target by Rs178 billion after two downward revisions, and the Tajir Dost Scheme (a government programme to bring traders into the tax net) raised near-zero revenue against a Rs50 billion target.

Pakistan is now negotiating its second downward revision of the FY26 target, from Rs13.979 trillion to Rs13.45 trillion, which would still deliver only 10.6% in tax as a share of GDP against the agreed 11%.

Miss, revise down, miss again. Three fiscal years in a row.

A research paper published by FBR’s own staff names the structural cause directly:

Placing a non-professional generalist in the FBR Chairman role is the most important variable behind Pakistan’s chronically low revenue performance, with Pakistan’s tax collection described as “among the lowest in the world.”

The Finance Ministry runs on a similar pattern:

Staffed mainly by rotational civil servants moved between posts every few years, rather than by economists and revenue specialists who build expertise over time.

Each external shock therefore finds the same unfixed revenue base that IMF tries to fix. Not the cabinet. Not parliament. That is where Pakistan sits in the arc of a state in financial trouble: The decisions that matter most are made outside its own institutions.

The Social and Security Context

Pakistan’s poverty rate was already 29% before this hike. This is the highest in 11 years, up from 21.9% in FY19.

Rural poverty rose from 28.2% to 36.2% in a single year.

In Balochistan, almost one in every two people lives in poverty.

Households at this income level spend 40 to 50% of what they earn on food.

Petrol at Rs458 raises the price of flour, medicine, and construction materials, practically anything that moves by road. Nothing is insulated.

On the western border, Operation Ghazab Lil-Haqq has also increased the demand for diesel and aviation fuel. Those costs move with the same oil price shock that is pushing petrol to Rs458. Defence fuel bills and household fuel bills are rising from one source.

So defence and household fuel bills are both rising off the same external shock. The state is trying to run a war, meet IMF targets, and manage the streets on a revenue base that keeps failing. That is one binding constraint, not three separate issues.

Quiet Moves That Matter

The IMF has set 11 structural benchmarks for Pakistan through the end of 2026.

These are specific conditions around tax policy, spending, and reforms. If Pakistan misses too many of them, the IMF can pause or end the programme.

The petrol levy hike buys the government a little more apparent compliance on paper. It does not stop the benchmark clock. April revenue numbers will be the first under the Rs458 fuel price. If demand falls and imports drop, revenue from consumption and trade will fall. That will move Pakistan closer to a programme review point that it is not ready to pass.

The market is trading the fuel headline. It is not yet trading the risk that the benchmarks trigger a funding shock. That gap is where the more serious risk sits this week.

What This Means Now

People

The fuel hikes now line up directly against people who already have nothing left to cut.

Over the next one to three months, three expense lines move together.

1. Transport fares rise because bus and rickshaw owners cannot absorb Rs458 petrol.

2. Flour and other staples cost more because mills and trucks run on diesel that tracks the same oil prices.

3. Electricity bills go up because backup power for the grid still depends on furnace oil and RLNG, which are tied to global fuel prices and Gulf supply.

Unemployment stands at 7.1 percent and poverty has risen from 21.9 percent to 28.9 percent since FY19.

That means the shock lands on households that have already taken a large hit with no savings buffer.

The real medium term risk is not just a few hard months. It is a lasting drop in small savings and informal investment. That hits small shop openings, rural equipment purchases, and even remittance behaviour.

For a household, the practical move now is to write down all monthly bills under two cases.

One, fuel and power stay near current levels for six months.

Two, they rise again if Gulf supplies get tighter.

Any expense that cannot survive both cases without new debt is at risk and needs a plan.

Investors

For the next 60 to 90 days, a cautious strategy is to hold only short term positions that can be exited quickly, in names with mostly local cost and revenue, such as basic consumer goods. Avoid long term government bonds, banks with heavy exposure to public paper, and shares where earnings depend on state projects or cheap imports.

Businesses

Fuel is now the tax that runs through every business model.

Fuel costs that runs through logistics, generators, raw material transport, and staff commutes are squeezing exporters, especially in textiles, from both ends. Their input and freight costs are up, while buyers can shift orders to Bangladesh or Vietnam if Pakistani prices rise too much or if they worry about unrest.

Producers of chemicals, plastics, and medicines buy imported inputs that are often linked to oil and gas prices. They sell into a market where household demand is slowing. That means less room to raise prices without losing volume. At the same time, suppliers up the chain will push for tighter payment terms to cover their own cash needs.

For firms with Pakistan exposure, three moves stand out.

1. Reprice contracts where possible using a fuel cost clause or shorter price tenors.

2. Cut inventory cycles so less stock sits on shelves at old prices while costs move.

3. And review any capital commitment that assumes calm conditions around the June IMF review period.

Those plans carry more risk now.

Policy and Development Actors

Policy makers and aid agencies are now operating inside a very tight box.

The state is trying to fund cash transfers, some level of public projects, and a counterinsurgency, all while keeping the IMF on side. The gap in tax revenue, the use of the fuel levy, and the cuts to project spending show that there is no spare fiscal room left. The 11 IMF benchmarks through 2026 are a timer. If too many are missed, the programme can pause.

If the programme stalls, access to foreign exchange shrinks quickly. That affects fuel imports, medicine, and any field operation that depends on imported gear or services. It also affects Gulf and Chinese confidence in Pakistan as a partner.

For government and development actors, the practical move is to triage. Which programmes absolutely need state co funding in Q4 FY26, and which can be slowed without deep harm. Which reforms can realistically pass in the next three months, and which are fantasy under current political and social strain. This is not a quarter where every ambition can move forward together.

What to Watch Next Week

April CPI reading

Watch if headline inflation goes into double digits. The government projects 7.5 percent inflation for FY26.

The April figure will be the first after the full Rs137 hike feeds into prices.

A print above 10 percent would break that forecast and push the State Bank toward higher interest rates.

That would raise debt service costs and deepen the budget gap. It also gives the IMF reason to doubt the programme’s base case.

If inflation jumps, expect local bonds and PSX to reprice and the June IMF review to get rougher.

FBR April revenue data

April is the first month with Rs458 petrol fully in place.

If people spend less and trade volumes fall, tax collection will not match the pace needed to raise Rs4.672 trillion by June.

The revised Rs13.45 trillion target would then be out of reach.

If April numbers look weak, treat that as an early sign of programme stress, not a one month blip. Investors and firms with 90 day exposure should be ready to cut risk fast.

Security events tied to TTP and Operation Ghazab Lil Haqq

Each spike in fighting raises fuel and logistics costs just when households are already angry about prices.

If a major attack hits KP or Balochistan, where poverty is above 35 percent, in the same week that fuel pain and tax stories dominate the news, that is the mix that can turn scattered anger into organised street action.

That would raise the political risk that foreign lenders and investors use in their models and can shorten Pakistan’s external funding runway.

So what: Compared with last week, anyone with Pakistan exposure should shorten time horizons, cut positions that depend on state project spending, and read the fuel levy as hard proof that structural tax reform will not land before the June IMF review.

Interestingly, in Principles of Changing World Order, Ray Dalio tracks eight main strength markers for a country: education, competitiveness, innovation and technology, economic output, share of world trade, military strength, financial center strength, and reserve currency status. These tend to rise together in a good phase, then erode together when a country starts to slide.

Overall posture: Summed in the image below.

The petrol hike exposes Pakistan’s fiscal bleed. The next months will show whether the state keeps asking the same small group of people to pay for the same old failures, or whether anyone in power is finally ready to accept what the numbers are already saying.

Surviving week at a time and at the wits’ end

- Syed Ali Shehryar

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• Qatar stopped sending LNG to Pakistan on March 2. The government told a Senate committee on March 16 that no liquefied natural gas will be available in the country after April 14.

• Gas flowing to the power sector has already been cut by more than half, from 300 million cubic feet per day (mmcfd) to 130 mmcfd.

• Diesel is up roughly 100% and petrol roughly 70% since March 7, the direct result of the US-Israel war on Iran shutting down roughly a fifth of the world’s oil supply through the Strait of Hormuz.

• Pakistan gets 70% of its petroleum from the Middle East.

• The country’s reserves stand at 11 days of crude, 21 of diesel, 27 of petrol.

• Remittances are still arriving in force, $3.29 billion in February 2026, up 5.2% year-on-year, but more than half of that comes from Gulf countries now living inside an active war zone.

The base case for the next 30 to 90 days is a managed energy squeeze: rolling power shortfalls, electricity costs rising sharply if the government buys spot LNG at $24 per unit versus the $9 Qatari contract price, and food price pressure from fertiliser plant curtailments. Pakistan’s domestic solar and renewable growth offers partial relief for electricity generation. It does not cover transport fuel, aviation, or industrial gas.

WHAT CHANGED

The LNG supply is running out. Of eight cargoes due in March, two arrived. Six scheduled for April are not coming. Officials are now working the phones to Azerbaijan for spot supplies, but at $24 per unit versus $9 under the Qatari deal, every unit of gas Pakistan buys between now and whenever Hormuz reopens costs 167% more. That cost either goes onto the electricity bill or into the government’s fiscal account. Neither option is clean given where Pakistan’s finances sit.

The fuel price data from the Senate briefing tells a straightforward story. High-speed diesel moved from $88 to $187 per barrel since the war began. Petrol went from $74 to $130. OGRA confirmed diesel is up about 100% and petrol about 70% since March 7 alone. The government passed Rs55 per litre of this onto consumers. Petroleum reserves are thin: 11 days of crude, 9 days of LPG. If shipping disruptions run past 30 days without new supply arrangements, Pakistan moves from a price problem to an access problem.

Remittance numbers look good but uncertain as the conflict progresses. February’s $3.29 billion was up 5.2% year-on-year, and the cumulative July to February figure of $26.5 billion is up 10.5% from the same period a year ago. The issue is where this money comes from. Saudi Arabia contributes 23.5% of FY26 remittances, the UAE 20.6%, and the rest of the Gulf another 9.5%. That is more than half of Pakistan’s foreign exchange lifeline coming from a region under active bombardment. A 30 to 40% sustained drop in Gulf-sourced remittances would cut monthly inflows by $500 to $700 million. A broader Gulf economic slowdown, in which oil firms suspend operations and construction projects freeze, would hit Pakistan’s external account harder than any single price shock.

Two quieter moves deserve attention. OGDC announced a new oil and gas discovery at Baragzai X-01 in Khyber Pakhtunkhwa on March 4, flowing 3,765 barrels of oil per day and 11.2 mmscfd of gas. The joint venture brings in PPL at 30% and GHPL at 5%. In a week defined by import disruption, a domestic production addition that extends OGDC’s reserve life is genuinely useful news. The second item is a policy proposal, not yet a decision: the Petroleum Division wants to retire Rs680 billion in gas circular debt (the accumulated unpaid bills in the gas supply chain) over five years by redirecting dividends from state-owned energy companies. PPL would contribute roughly Rs230 billion and GHPL roughly Rs200 billion under this plan. If it becomes policy before OGDC’s April 23 earnings call, investors holding these names for dividend income need to reprice that expectation now. HUBC, the power company most exposed to gas input costs, is already down 10.67% year-to-date, trading at Rs197.75. The market is telling you the fuel risk is real.

On the Afghan border, Pakistan declared open war on Afghanistan on February 27, struck Kabul on March 16, and accepted a fragile Eid ceasefire brokered by Saudi Arabia, Turkey, and Qatar on March 18. Nearly 66,000 people have been displaced inside Afghanistan. The UN's 2026 humanitarian appeal for Afghanistan stands at $1.71 billion but is only 10% funded. International donors, including the UK and UAE, have historically channelled aid through Afghan authorities whose ability to separate civilian funds from armed group logistics has been poor. The United Kingdom recently announced an additional £3 million (AFN 257 million) in humanitarian assistance to Afghanistan, aimed at supporting people affected by natural disasters and other shocks. If that pattern holds, aid flowing into Afghanistan right now could extend the conflict's duration and raise Pakistan's own defence costs, fuel bills, and security spending beyond what the border war already demands.

WHAT THIS MEANS NOW

People

Electricity bills will rise before they fall. Gas to the power sector is already down to 130 mmcfd from 300, and once LNG stocks run out on April 14, load shedding will increase. Diesel at double its pre-war price raises the cost of food transport, farming machinery, and everyday commuting. For the roughly 4.9 million Pakistanis working in Gulf countries, the near-term picture is not mass unemployment. Most are still employed. But Gulf businesses are slowing, and uncertainty is rising. Over the next three to twelve months, the workers most at risk are those in Gulf construction and lower-skilled services, the same sectors most exposed to project freezes when investment confidence drops.

Investors

OGDC and PPL sit on the right side of this energy shock. Rising oil prices increase the value of their domestic production, and OGDC’s Baragzai discovery adds a near-term production catalyst. OGDC holds Rs327 billion in cash and short-term investments alongside Rs501 billion in overdue receivables; the receivables remain unresolved, but the cash position is substantial. The dividend proposal is the watch item. If the Petroleum Division’s plan to redirect E&P dividends toward gas circular debt retirement advances to formal policy, the yield story for OGDC and PPL changes materially before earnings season. HUBC is the clearest risk in the listed space. A power company running on gas in a week when gas has been cut by more than half is not a hold-and-collect story right now. On FX and remittances, the February data is healthy and Eid will likely produce strong March figures. Investors with longer-duration Pakistan positions should stress-test their assumptions against a scenario where Gulf remittances soften through the second half of FY26, while the import bill stays elevated.

Businesses

Gas curtailment is not a future risk. It is happening now. Power sector gas is at 130 mmcfd. One fertiliser plant has had supply cut by 50%. Businesses on SSGC or SNGPL supply should plan for further cuts between now and mid-April, not a recovery. Any contract priced before March 7 that relies on fuel or energy inputs needs review; those inputs cost 70 to 100% more today. Exporters shipping through Gulf ports face war risk insurance premiums that could add 15 to 25% to freight costs, which adds an estimated $50 to $100 million per month across the whole export base. Fertiliser producers dependent on LNG feedstock face the sharpest input cost shift of any sector; at $24 per unit spot versus $9 contracted, production economics are no longer what they were in January. Businesses that use Afghan transit or the Iran corridor for Central Asian trade should treat both routes as closed for planning purposes.

Policy and development actors

The government is simultaneously managing a fuel supply crisis, a border war with Afghanistan, domestic sectarian tension, and a fragile IMF programme, with petroleum reserves measured in days, not months. The decision on spot LNG, whether to absorb the $24 per unit cost fiscally or pass it through to tariffs, will set the tone for the IMF programme’s fiscal targets this quarter.

Pakistan’s Strategic Mutual Defence Agreement with Saudi Arabia creates a political and military obligation which commits both states to treat aggression against one as aggression against both, with public statements from Pakistani officials like Deputy Prime Minister Ishaq Dar citing it as a reminder to Iran during recent Iranian strikes on Saudi soil. That clause has been invoked in the Iran context, where Pakistan used the pact to seek Saudi assurances against attacks on Iran and to limit Iranian retaliation, but no source spells out automatic troop commitments for the Afghanistan conflict, leaving obligations more about coordination and deterrence than direct intervention. The pact creates binding political and military expectation for both crises, exactly when Pakistan and Saudi Arabia face overlapping pressures from Taliban hostilities and Iranian strikes.

Field Marshal Munir is at the centre of crisis response, including a 20 March meeting with Shia clerics amid protests linked to Iran tensions and the Karachi consulate, which shows military leadership diverting bandwidth to domestic containment. On Afghanistan, the Eid ceasefire pause was secured after Saudi Arabia, Qatar, and Türkiye made direct requests to Pakistan’s leadership, with sources pointing to Munir as the key contact for Gulf mediators, even if the back channel details remain opaque. That positions the Field Marshal as the fulcrum for de escalation talks, tying domestic stability to border management.

Afghanistan’s 2026 humanitarian appeal is $1.71 billion and only 10% funded. With the Pakistan border closed and the Iran trade route under strain, delivery routes for assistance are narrowing fast. For multilateral partners, the combination of energy shock, security costs, and humanitarian strain in a single country at the same moment makes Pakistan another acute stabilisation case in the region this week.

WHAT TO WATCH NEXT WEEK

1. LNG cargo confirmation before April 14. If no cargo is secured in the next two weeks, the power sector faces a gas cliff rather than a gradual decline.

2. March remittance data from SBP, expected in early April. The anticipated Eid seasonal boost will likely produce a strong headline number. A flat or falling Gulf share during Eid season would be the first concrete evidence that Gulf employment conditions are already deteriorating.

3. Pakistan-Afghanistan ceasefire after Eid. Operation Ghazab Lil Haq has not been formally suspended. If fighting resumes at scale after Eid, Pakistan runs a border war alongside its energy crisis, with higher defence fuel costs, a closed trade route, and diverted government bandwidth. A durable ceasefire does not solve the energy problem but it removes one set of fiscal and operational pressures at a moment when Pakistan can barely afford the ones it already has.

POSTURE

For businesses, individual and sovereign investors, the signal is to tread carefully. Domestic E&P names with production upside, specifically OGDC and PPL, may offer a real hedge against the energy shock, but the dividend risk from the gas circular debt proposal and the deteriorating external balance make this a stock-picker’s market. It is not a broad Pakistan entry point for the next 30 to 60 days.

CONFIDENCE NOTE

Confidence is medium-high on the energy picture and medium on the remittance and security trajectories.

• The LNG supply data rests on primary ministerial testimony to a Senate committee, specific cargo counts, a named date, and corroborating price data from OGRA.

• The strongest rival view is that Pakistan's domestic renewable growth absorbs the LNG gap faster than the Senate briefing implied, producing a shorter and shallower power crisis.

• Energy Minister Leghari made this point in the same week, citing solar, wind, nuclear, coal, and hydro capacity. That view does not survive the 300-to-130 mmcfd cut already in place. But it gains force if April domestic generation data shows faster switching than expected.

• The main unknowns: whether spot LNG is secured before April 14; whether the Afghan ceasefire holds after Eid; and whether the circular debt dividend proposal becomes confirmed policy before the April earnings cycle begins.

Conclusion

The current conflict, which is pushing the world to an economic crisis not seen in years, will affect the Global South the most. Pakistan is buying fuel at prices it did not budget for, fighting a border war it cannot fully afford, and watching more than half of its foreign exchange lifeline sit inside an active conflict zone. The reserves are thin, the options are expensive, and the decisions being made right now, on spot LNG, on the ceasefire, on E&P dividends, will set the conditions for the next six months.

None of this is inevitable catastrophe. Domestic renewable growth is real. The Baragzai discovery adds to the supply side. Remittances have held. There is room to move. But that room narrows with each week the Strait of Hormuz stays closed, each day the Afghan border remains shut, and each aid package that reaches Kabul without accountability for where it goes next.

The gas clock started ticking this March. Watch what happens on April 14.

Until next week,

Syed Ali Shehryar

March 24, 2026.

Nothing here constitutes investment advice, nor a recommendation to buy, sell, or hold any asset. Consult a qualified financial advisor for decisions tailored to your situation.

This week, our focus was the convergence of a stalled IMF review, a UAE deposit expiring April 17, and Brent at $108.78 as the primary driver of balance-of-payments risk for every stakeholder with Pakistan exposure.

Three signals today shifted the base case from deteriorating to manageable: a five-day Eid ceasefire on the Afghan front, Pakistan's first oil tanker through Hormuz since the strait closed, and near-consensus on a revised IMF fiscal framework. All three need to convert into durable commitments within 30 days. None of them has.

Pakistan is now in a 30 to 90 day period of medium to high external financing risk. That risk has moved from even chance to likely because oil is higher, the UAE deposit still lacks a confirmed longer rollover, and tax collection has come in below plan. The buffer is real. SBP reserves are around 16.34 billion dollars, total reserves are around 21.6 billion dollars, and remittances reached about 26.5 billion dollars in the first eight months of FY26. That keeps Pakistan at step two of the pressure chain, not step four. It does not remove the chain.

What the market is already pricing

The KSE-100 closed at 154,292 on March 18, up 2.85 percent on the day after a seven-week selloff that took the index to an intraday low of 149,178 on March 16. From January 23’s all-time high of 189,556, the index has shed roughly 35,000 points or 16 percent, even as it remains up 28 percent year on year.

That gap tells you something precise. The year-on-year gain reflects the genuine macro stabilization Pakistan achieved through 2025. The 16 percent peak-to-date drop reflects the market repricing execution risk under an oil shock the IMF program was never designed for.

The selloff is concentrated in energy, banking, and fertiliser stocks, all of which carry direct exposure to the energy sector balance sheet and to IMF conditionality on circular debt.

The March 17 to 18 partial recovery came on value-buying, slightly easing crude, and news of the Afghan ceasefire. It does not represent a verdict on whether the underlying pressure has passed.

Energy debt and oil

Power sector circular debt stood at Rs 1.689 trillion at end-December 2025. The Rs 1.225 trillion bank refinancing deal moves that stock onto consumer bills via a Rs 3.23 per unit surcharge.

The IMF demanded zero net circular debt accumulation in FY26. Circular debt still rose Rs 75 billion in the first half of FY26 despite the bank deal.

On the gas side, total debt including late payment surcharges reached Rs 3.283 trillion in February 2026, with lawmakers warning the Standing Committee on Petroleum of systemic collapse.

The government is seeking IMF approval for a three-year gas circular debt retirement plan using OGDCL and PPL dividends. That approval has not come.

These numbers explain why Pakistan’s investment-to-GDP ratio stagnates at 13.8 percent in FY25, the lowest in Asia, against Bangladesh at 22 percent and India above 30 percent. Energy sector arrears consume bank balance sheets and crowd out private credit. Without investment above 20 percent of GDP, Pakistan’s sustainable growth ceiling sits at 3 to 4 percent per year. No amount of FBR revenue performance closes a structural investment gap caused by energy sector insolvency.

Oil crossing $100 and what it does to the IMF program

Oil above 100 dollars makes that problem harder and faster. Brent traded around 108.78 dollars on March 18 and hit as high as 109.95 intraday. Pakistan’s petroleum import bill was around 16 billion dollars in FY25, so sustained prices above 100 dollars can add several billion dollars a year to the import bill. That is why the June 2026 reserve target looks harder to reach without either a program adjustment or a weaker rupee.

The domestic binding constraint is still FBR performance. IMF and Pakistan appear close to a revised target, but staff level agreement has not been announced and governance questions remain live, including over asset disclosure changes and the UAE deposit rollover. That matters because the next full IMF mission is expected around May, while the April financing calendar arrives first..

The five-step chain and where Pakistan sits on it

Hormuz is the trigger that turns high oil into a live Pakistan problem. Pakistan’s MT Karachi made it through the Strait after routing close to the Iranian coast and entered Pakistani waters carrying crude, which shows selective access is possible. But one successful tanker is proof of access, not proof of volume. It does not normalize the import system.

The five step chain now looks like this:

Oil stays above 100 dollars and pushes the current account back toward stress. The rupee then has to absorb part of that pressure.

Imported inflation rises from the current 7 percent rate, which reduces room for rate cuts and may force SBP to stay tight for longer. That weakens private credit and hiring.

Then tariff pressure, slower jobs growth, and a tighter political mood narrow the room to deliver IMF conditions. After that, the next tranche gets harder, bilateral confidence in rollovers weakens, and sovereign funding costs rise.

Pakistan appears to be at step two today. The rupee is still holding near 279 to the dollar because remittances remain strong and reserve discipline has held. Step three arrives within 60 to 90 days if oil stays high and shipping access remains selective. The Eid ceasefire matters because it briefly lowers military fuel demand and opens a narrow diplomatic window on the Afghan side. The higher order point is that Pakistan does not need a full macro break to lose room. It only needs step three to harden before the financing pieces are locked in.

What to look out for

1. Ceasefire with Afghanistan: Whether the five day Eid ceasefire with Afghanistan survives past March 23 or collapses back into strikes, drone attacks, and border closure logic. If it holds even briefly, Pakistan gets lower military fuel burn, a small fiscal breathing space, and a narrow chance to reopen part of the trade corridor that has been effectively shut since October 2025. If it breaks, border provinces lose more trade, exporters keep absorbing losses, and the state pays for a hotter western front while oil is already expensive.

2. Strait of Hormuz: Whether it remains a selective access route or becomes a harder choke point. Pakistan’s MT Karachi getting through proves access is possible under controlled conditions, likely because Tehran still sees some value in letting Pakistan remain usable as a neutral channel. But one ship is not throughput. If passage stays selective, Pakistan can muddle through with higher cost. If passage tightens further, the oil problem turns from price shock into physical supply stress.

3. LNG: Senate testimony says LNG may not be available after April 14 because Qatari supply has been disrupted, with only two of eight March cargoes arriving and April cargoes at risk. While a crude oil shock hurts the external account, an LNG shortfall hits power generation, fertiliser feedstock, and industrial output at the same time.

4. Flow of remittances: Arab countries accounted for 53.3 percent of remittances in the first eight months of FY26, while the UAE and Saudi Arabia alone sent about 696 million dollars and 685.5 million dollars in February. That means the same region creating Pakistan’s oil and deposit stress is also the region holding up the rupee. If Gulf infrastructure attacks continue, the old assumption that remittances adjust only with a long lag becomes less safe because physical disruption can hit labour demand and payment channels faster than a normal oil cycle would.

5. Pak-Saudi Mutual Defence Pact: If Riyadh formally calls on the defence agreement, Pakistan’s problem changes from managing external financing to managing alliance choice under fire. The likely opening move would be limited security help such as intelligence, training, air defence, or maritime support rather than a large combat deployment, but even a limited move could reduce Iran’s willingness to tolerate Pakistani shipping access and raise sectarian, proxy, or cyber pressure inside Pakistan. That is a fast path from step two of the current chain toward step four, because it compresses decision time and shrinks neutrality.

What this means for people

Watch fuel, electricity, gas supply, and hiring. The direct risk is not a sudden collapse. It is a squeeze in living costs and slower income growth if oil stays high and LNG cargoes do not resume.

What this means for investors

The market is telling you that stabilization was real, but that the next leg depends on execution. The right distinction is not bullish or bearish. It is exporters and low leverage firms versus import heavy and energy linked balance sheets.

What this means for businesses

The watch items are freight, power, gas, working capital, and customer demand. If LNG shortages start after April 14 and Gulf routes stay expensive, firms will feel it first through delays, margins, and cash conversion cycles rather than through a dramatic macro headline.

To all those making motivational content and videos on 2025 was a trailer, 2026 is going to be the year we build an empire… please shut up! You’ve already jinxed it and we’re not even half way through the year.

On March 8, 2026, Tehran woke up to a blackened rainfall. Residents reported rainfall that left oil stains on clothes, burned skin on contact, and corroded car paint.

Iran’s Red Crescent Society confirmed that US and Israeli airstrikes on fuel depots and an oil refinery in Alborz province released hydrocarbons, sulfur oxides, and nitrogen oxides into the atmosphere.

When those gases mix with water in clouds, they fall as acid at a pH of 4.0 or below, far more corrosive than normal rain at pH 5.6.

The strikes also sent PM2.5 particles, polycyclic aromatic hydrocarbons (PAHs), and heavy metals vaporized from building materials into the air above a city of 10 million people.

The media covered the fires. The story that will matter for the next decade is the one no agency is currently measuring.

Gulf water at risk

The Persian Gulf sits downstream from all of this, in every sense. It’s a semi-enclosed basin with one exit point, the Strait of Hormuz, and a water residence time of two to five years under normal tidal conditions. That means whatever enters the water stays there, mixing through the whole system, before it slowly flushes out.

Benzene, one of the primary compounds released by burning crude petroleum, dissolves directly into seawater. It also passes through reverse osmosis membranes at measurable concentrations.

Every major desalination plant across the Gulf runs on reverse osmosis technology, and those plants supply drinking water to roughly 50 million people across seven countries. The World Health Organization’s safe limit for benzene in drinking water is 10 micrograms per litre. The US Environmental Protection Agency (EPA) sets a maximum contaminant level of 5 micrograms per litre.

As of this writing, no Gulf government has published a single water quality reading since the fires began.

That gap is not a communication problem. It’s a decision problem. Water testing baselines need to be established now, while contamination is still attributable to a specific event on a specific date. Every day without a reading is a day of baseline data that cannot be recovered.

If benzene levels are later found in Gulf desalination output, and no measurements exist from March 2026, there’s no legal or scientific anchor for when contamination entered the system.

The causal chain breaks, and with it, any path to accountability.

Seafood chain contamination

The food supply chain adds a second exposure route that moves more slowly but compounds over time.

Benzene itself evaporates relatively quickly from surface water.

PAHs from oil combustion behave differently: they bind to organic particles, settle into sediment, and accumulate as they move up the food chain.

Phytoplankton absorbs them first.

Small fish that feed on phytoplankton carry higher concentrations. Larger commercial fish carry higher still. The Persian Gulf’s commercial fisheries supply populations across all seven bordering countries and export to South Asia and East Africa.

No Gulf government has issued a seafood safety advisory. The window for establishing pre-contamination baselines in fish tissue is also closing.

Winds carry the danger forward

Wind direction adds a third vector. The prevailing atmospheric pattern over the Gulf in March carries particulates northeast, over Iran, then into Pakistan and northwestern India.

Pakistan’s air quality monitoring already recorded dangerous particulate concentrations before the depot fires. Cities like Lahore regularly exceed 100 micrograms per cubic metre of PM2.5, well above the WHO’s guideline of 15 micrograms per cubic metre as an annual mean.

Atmospheric scientists have established that PM2.5 concentrations above 35 micrograms per cubic metre produce measurable increases in respiratory mortality within 72 hours of sustained exposure, and that the dose-response relationship steepens sharply around 250 micrograms per cubic metre, a level Lahore reaches during peak pollution episodes even without additional inputs.

The corridor affected by this event holds over 540 million people. No international environmental body has published current atmospheric readings for it since March 8.

The question this raises is not primarily humanitarian. It’s about asset assumptions. Gulf investment theses in water infrastructure, food supply, and real estate rest on the premise that these systems are stable and supply is assured.

A contamination event in desalination output, even a sub-threshold one, would produce public pressure for disclosure that governments are currently avoiding.

The long shadow of delayed harm

Undisclosed contamination that surfaces in 2029 or 2032 carries a different risk profile than one disclosed and managed now. The healthcare burden from PAH and benzene exposure typically appears in oncology and pulmonology wards eight to fifteen years after the event. Those costs land on national health systems, on insurance pools, and on populations whose consumption patterns sovereign investors are pricing into their long-range models.

Qatar’s prime minister warned, before this escalation began, that a contamination event in the Gulf could leave the country without potable water in three days. Qatar has since built emergency water reserves. Most of its neighbours have not built equivalent monitoring infrastructure. The monitoring gap is itself a governance risk that any serious political risk assessment of Gulf assets should now include.

The first set of casualties from March 8 will appear in the near term: in hospitals near the strike sites, in official statements about the military operation, in diplomatic fallout.

The second set will appear in hospital records between 2030 and 2040, in populations that live close to the Gulf’s coastline and water infrastructure, who had no role in the decision to strike and no legal relationship with the parties that did.

Those records will be compiled by researchers whose findings will not trend anywhere. Benzene and PM2.5 don’t observe ceasefires.

What policymakers need to do, and fast

The action available right now, to any government in the region with access to a water testing laboratory and an air quality monitoring station, is to take readings and publish them.

That’s it.

The data either shows the system is clean, in which case publishing it is reassuring and costs nothing, or it shows contamination is present, in which case the earlier it’s found the more options exist for response.

Waiting produces only one outcome: a smaller set of choices, further down the line, for a larger set of people.

I had anticipated this and gotten all my vehicles filled a day prior. But that’s not the point of this post.

It is the 28-day clock.

Pakistan's petroleum stocks are expected to run out in 28 days. That is not a figure of speech. The government told the Senate Standing Committee on March 4 that the country holds 28 days of commercial fuel reserves and has no strategic petroleum reserve at all, despite a 1983 Federal War Book requirement for 45 days and a 2006 policy calling for 60. Neither was ever implemented. These numbers are clarified by industry officials and media analyses that the 25–28 days of stocks held in-country are commercial reserves (held by OMCs/refineries), not a government-controlled strategic buffer.

Brent crude closed at $92.69 on March 6, up 27 percent from its pre-strike level of $73 on February 27. Pakistan imports 80 to 85 percent of its oil through the Strait of Hormuz. Iran has closed the strait.

The closure comes at a time when the Pakistan Air Force is running active combat operations against Afghanistan under Operation Ghazab lil-Haq, consuming jet fuel from those same commercial stocks. It also does when India has upgraded diplomatic ties with the Afghan Taliban at the exact moment Pakistan is at war with it.

Another example of why Pakistan unfortunately never catches a break. Five shocks, arriving at once, and hitting an economy actual reserve buffer is approximately $3.5 billion once you subtract $12.5 billion in borrowed bilateral deposits. To put the figure in perspective, the reserve buffer is equivalent to approximately three-days’ revenue of Aramco and Apple, or what Amazon makes in about two days.

The combined current account shock from higher oil costs and possibly declining remittances falls somewhere between $4 billion and $10 billion this fiscal year. That range is wide because duration matters more than any other variable. Every week the Hormuz closure holds, Pakistan's position deteriorates in ways that are not linear.

The oil shock is confirmed. The question is how bad it gets.

Goldman Sachs projects Brent reaching $100 within five weeks of sustained disruption. JP Morgan puts the range at $100 to $120 if closure extends beyond three weeks. Wood Mackenzie models $125 to $150 for prolonged blockage. Qatar's Energy Minister told the Financial Times crude could hit $150 in the coming weeks. The analyst consensus has moved here.

Pakistan's FY25 petroleum import bill was $16 billion, with crude oil specifically at $11.3 billion. At a 20 percent price increase from the $90 baseline, the additional annual cost runs $3.2 to $4.2 billion. At 30 percent above baseline, the range is $4.6 to $6.3 billion. These figures assume no reduction in import volumes, which is optimistic given rationing already visible in the government's work-from-home directives.

A one-month crude disruption at current prices consumes roughly half of Pakistan’s usable reserve buffer. The IMF reserve target of $17.5 billion by June 2026 assumed these deposits held and inflows remained stable. Both assumptions are now under pressure.

Remittances face a shock that past precedents understate, and exports face a second one on top of it.

Pakistan’s FY26 remittance projection sits at $41 to $42 billion, with Gulf countries contributing 54.6 percent of FY25 inflows. Saudi Arabia sent $9.35 billion. The UAE sent $7.87 billion. A 10 percent decline in Gulf inflows costs $2.2 billion. A 15 percent decline costs $3.3 billion.

Three precedents offer partial guidance.

1. During the 1990 Gulf War, remittances held because most Pakistani workers were in Saudi Arabia and the UAE, and Pakistan joined the coalition.

2. During COVID-19, remittances rose as workers shifted to formal banking channels.

3. During the 2015 to 2016 oil price crash, Gulf remittances declined 5 to 6 percent with a 6 to 12 month lag.

Each of those cases involved Gulf economic stress that stopped short of attacking Gulf infrastructure directly. Iranian drones struck Saudi Aramco’s Ras Tanura refinery this week. Qatar halted LNG production after attacks on Ras Laffan. The construction and services sectors where Pakistani workers concentrate now face genuine economic contraction. A 6 to 12 month lag assumes a slow-moving price shock. Physical damage to Gulf production capacity moves it faster.

The textile sector, at $17.9 billion and 56 percent of merchandise exports, faces a freight shock on top of the remittance pressure.

Freight costs on major routes could surge 300 percent. A 40-foot container normally costs $2,000 to ship to Rotterdam, 4 to 8 percent of FOB value. At 300 percent above normal, freight reaches $8,000, pushing the freight-to-FOB ratio to 16 to 32 percent. APTMA data suggests Pakistani textiles lose price competitiveness above 10 to 15 percent.

Pakistan’s competitors absorb little of this.

Vietnam ships from the Pacific. Bangladesh uses Bay of Bengal ports with limited exposure. India’s east coast ports in Chennai, Visakhapatnam, and Kolkata sit entirely outside both the Hormuz and Suez disruption zones. Pakistani exporters absorb all of the headwinds that their competitors largely avoid.

The Afghan war and the fuel shortage are drawing from the same pool.

The fuel running Operation Ghazab lil-Haq comes from the same 28-day commercial stocks available to 220+ million civilians. Pakistan is operating ~300 plus combat aircraft, each consuming 800 to 1,000 gallons per hour in active operations. Armored formations engaged on the Western front also come with significant fuel costs.

In 2023, the Pakistan Army suspended all military drills because of fuel shortages. Amidst active combat operations against Afghanistan, Pakistan faces same supply constraint but far greater operational demand. The $9.04 billion defense budget, up 20 percent this year, combined with $25.8 billion in external debt servicing, consumes virtually all federal revenue.

Three scenarios, and why the government is only preparing for one.

Full Hormuz closures have historically never lasted more than days, even during the 1980s tanker war. The base rate for blockage sustained beyond 30 days is low. The implied probability of closure beyond 60 days, based on options markets and prediction platforms as of March 6, sits below 25 percent. Multiple sources report low-level US-Iran backchannel signaling, which is inconsistent with prolonged closure as a stable equilibrium.

Three scenarios are worth preparing for.

1. In the first, disruption lasts two to four weeks before partial normalization.

2. In the second, it runs two to three months with episodic tanker passage.

3. In the third, closure becomes semi-permanent at six months or more.

Iran has not attacked Yanbu loading infrastructure, which would make quick resolution far less likely. The apparent existence of US-Iran back-channel communication makes prolonged closure a less stable outcome.

Pakistan’s current response covers scenario one adequately. The monitoring committee under Finance Minister Aurangzeb is meeting daily. Petroleum Minister Ali Pervaiz Malik secured a crude supply assurance via Yanbu, with one vessel confirmed. Pakistan raised petrol and diesel prices by Rs 55 per liter on March 6 and shifted to weekly pricing. OGDC is preparing to raise domestic crude output 14 percent to roughly 40,000 barrels per day.

Scenarios two and three require moves the government has not yet made.

Protection & Indemnity (P&I) players have withdrawn war-risk coverage entirely for Hormuz transits. Without coverage, no commercial tanker captain sails through the strait regardless of price.

Pakistan can negotiate directly with Lloyd's of London for a government-backed war-risk indemnification facility. The UK government did this during the Falklands War. Japan and South Korea are already exploring a joint Asian war-risk pool in response to the current crisis. Pakistan has standing to join that conversation and should be in it within days. This path to resumed tanker traffic is faster than waiting for a diplomatic resolution.

The SBP-PBoC renminbi swap facility, worth approximately $4.5 billion, has never been used for petroleum procurement. Pakistan could pay for Chinese-sourced crude and Russia-via-China oil in renminbi, preserving dollar reserves for IMF program targets. India used rupee-based oil payment mechanisms with Russia starting in 2022. Pakistan has the same option through SBP's existing swap line. The question is whether finance ministry staff are making that call this week.

On remittances, Pakistan is leaving a multi-billion-dollar FX buffer on the table by treating overseas Pakistanis only as monthly remitters, not as long-term investors. Pakistani bank branches in Saudi Arabia and the UAE need to act fast and immediately launch 3‑year sovereign diaspora bonds at 6–7 percent, giving Gulf workers a simple, higher-yield way to park their savings in Pakistan rather than in offshore accounts. Bangladesh’s 2020 wage-earner bonds showed this model works: the investor base exists, the risk is understood, and the structure is straightforward. What is missing is urgency and political will.

On textiles, SBP will need to open a freight-shock working capital facility where confirmed export purchase orders serve as collateral for 90-day financing at below-market rates. With 15 to 20 additional transit days per shipment, exporters face a working capital gap that pushes them toward accepting order cancellations. Cancellations in textiles tend to be permanent because buyers move to suppliers who can deliver on schedule and rarely return. Acting before factories start cutting shifts is what separates a temporary revenue dip from a lasting loss of market share.

Gwadar cannot substitute for Hormuz, and the government has not said so publicly.

Against these practical moves, the government announced a different kind of solution. Maritime Affairs Minister Junaid Anwar Chaudhry convened a meeting on March 5 positioning Gwadar as a regional transshipment hub. The optimism around Gwadar masks structural gaps that cannot be closed on a crisis timeline.

Gwadar’s berths handle vessels up to 30,000 DWT. Supertankers carrying Gulf crude are 300,000 DWT. No pipeline connects the port to Pakistan’s inland refining system. Meaningful energy transit capacity is five to ten years away at minimum, requiring billions in investment that CPEC Phase 2 has not provided. China shifted to a multilateral consortium model for the $6.8 billion ML-1 upgrade during PM Shehbaz Sharif’s September 2025 Beijing visit. FDI fell 43 percent in H1 FY26 to $808 million. Balochistan saw 254 terrorist attacks in 2025, a 26 percent increase year on year. These are not signals of a port ready to absorb redirected global energy flows. The conversation about what Gwadar realistically can and cannot do needs to start at the decision-making level, and it has not.

Three variables will determine whether this is managed or repeated

This same pattern has played out before. The strategic reserve was discussed in 1983. A government-backed insurance facility was discussed. Activating the swap lines was discussed. None of it moved. Pakistan now faces a six-week Eurobond deadline and a virtual IMF review with the same structural gaps it chose not to close over four decades. The recursive loop is visible.

Pakistan’s $1 billion Eurobond matures in April 2026, six weeks from now. The rupee, stable at PKR 278 to 280 since the EFF approval, faces pressure proportional to how long the Hormuz closure holds. Three variables determine the outcome: how long Hormuz stays closed, whether Saudi Arabia can load enough vessels through Yanbu to cover Pakistan’s monthly demand, and whether China and Saudi Arabia roll their bilateral deposits at the next maturity window.

Securing the renminbi swap activation, Yanbu loading guarantees, and deposit rollovers within ten days is what a managed outcome looks like. Missing that window before the April Eurobond wall and the virtual IMF review produces something closer to 2022, without the runway Pakistan had then to arrange a program from scratch.

Pakistan is watching live US and Israeli missiles hit Iran while actively fighting militant Afghanistan. It has moved from warning Kabul to bombing targets in Kabul, Nangarhar, Khost, and Paktika within days of fresh attacks at home. For leaders with exposure to Pakistan, the question is “How far can a state fighting a live border war, under an Iran conflict and IMF rules, still honour contracts and keep macro gains.” The core problem this week is how war on two western arcs and oil risk reshape Pakistan’s corridors, not whether Pakistan is willing to hit back.

This Week In Brief

Pakistan has carried out intelligence led airstrikes against seven camps in Nangarhar, Paktika, and Khost, then widened fire under Operation Ghazab Lil Haqq after a month of suicide attacks in Islamabad, Bajaur, and Bannu. Kabul calls this a breach of its territory; Islamabad calls it overdue punishment for TTP and allied groups that plan from Afghan soil. At the same time, the United States and Israel have hit Iranian command and missile sites, Iran has replied with drones and missiles, and Iran backed Houthis have again threatened Red Sea routes, lifting oil by about 3 to 4 percent and pushing 2026 price forecasts higher.

FX reserves at the State Bank are about US$16.2 billion, total liquid reserves are above 21 billion, January CPI is 5.8 percent inside the 5 to 7 percent target band, and Islamabad is on course for the next IMF review. That cuts short horizon default and pure FX crisis risk into the “unlikely” band. The big swing is elsewhere: regional war and oil pressure now sit around 60 to 70 percent (likely to very likely), and the Afghanistan–Pakistan clash has moved from sporadic fire to open war with stated intent to “eliminate” TTP leadership wherever found. India has not shifted posture this week, so a hot eastern front remains very unlikely, but a probe in a stressed moment would carry high cost if it came.

Governing Thought And Posture

Pakistan is in a 12 month stretch of medium risk driven by three things: regional war and oil, AfPak conflict, and the need to stay inside IMF lines while fighting live enemies. Regional war and oil stress is now roughly 60 to 75 percent (likely to very likely) after strikes on Iran, new Red Sea threats, and higher 2026 oil projections. Cross border security risk sits in the same band after 699 attacks in 2025, a demarche over Bajaur, and now cross border strikes and Operation Ghazab Lil Haqq. Short horizon default risk has dropped to roughly 25 to 35 percent after IMF board approvals and steady reserve gains.

This shifts risk from “will Pakistan pay?” to “which corridors and sectors still make sense under war, oil, and coercive strikes.”

Pakistan is investable this week only on a selective and hedged basis: the state has shown it will hit back hard westwards, but that same fight plus Iran war and shipping stress tighten every corridor.

This Week’s Risk Shifts

Regional war and oil linked external stress – ⬆️

• Prior: 45–55 percent (even chance)

• New evidence: US and Israeli strikes on Iran’s leadership and missile infrastructure, Iran’s drone and missile reply across the region, and Iran backed Houthi threats have pushed oil up by about 3–4 percent and lifted 2026 price forecasts by nearly 2 dollars a barrel.

• Updated: 60–75 percent (likely to very likely).

• Impact: Higher fuel and freight bills, rougher current account math, and more pressure for tariff hikes at home.

Afghanistan–Pakistan conflict – ⬆️

• Prior: 45–55 percent (even chance) that clashes would stay at low burn.

• New evidence: Pakistan has issued a demarche over Bajaur, then carried out intelligence based airstrikes against seven TTP and ISKP camps in Nangarhar and Paktika, and then widened fire and ground moves under Operation Ghazab Lil Haqq; Afghan forces have replied, and both sides speak of war and large enemy losses.

• Updated: 60–70 percent (likely) that fighting stays live over the next year.

• Impact: Higher security spend, more risk premium, and slower timelines for assets and routes in KP, merged districts, and Balochistan.

Two front scare with India layered on west – ↗️(slightly up)

• Prior: 10–20 percent (very unlikely).

• New evidence: No new Indian build up or clash this week, but Pakistan is now in open fighting on the western front while Iran war pulls in US and Gulf assets, which reduces slack in the system.

• Updated: 20–30 percent (still unlikely).

• Impact: Even a short India scare on top of this would hit PSX harder than the recent US–Iran moves, widen spreads, and could force FX and trade steps that undo IMF gains. This remains a scenario, not a base.

Near term default and pure FX crisis – ⬇️

• Prior: 55–65 percent (likely) during the 2022–23 crunch.

• New evidence: IMF board cleared the second review and released 1.2 billion dollars; staff and local work show Pakistan broadly on track, and SBP reserves now stand near 16.2 billion dollars with total liquid reserves over 21 billion and targets above 17 billion by mid 2026.

• Updated: 25–35 percent (unlikely).

• Impact: Lower odds of outright payment stop in the next year even under war and oil stress.

What’s Moving, What’s Not (Attention vs Movement)

In this matrix, “attention” is media and commentary; “movement” is prices and real flows. Attention is high when an issue dominates major outlets, low when only a narrow crowd watches it. Movement is high when prices or real indicators shift by more than about 2 percent; low when they barely move.

Outside Pakistan: Global And Regional Moves

Global rates remain high, while Iran war adds a fresh layer of oil and risk premia. For Pakistan this pulls on the current account, budget, and IMF path by raising the fuel bill just as the state tries to clean up power sector arrears and hold inflation near 5–7 percent.

Red Sea raids and threats have cut traffic and pushed ships around Africa, adding days and cost to voyages to and from Europe. Pakistan’s exporters and importers who use these routes face higher freight and insurance; if firms and state bodies do not adjust, that cost shows up as thinner margins or higher prices.

Afghanistan–Pakistan now sits as a live regional flashpoint: Kabul gives cover and space to TTP and tells Pakistan to solve TTP “internally”, while Pakistan actively engages, foregoing the previous passive stance, the Durand Line and declares its patience over. India has stayed outside this fight so far, but closer Kabul–Delhi links and Afghan use of Indian equipment keep Delhi in the background of Islamabad’s calculus.

Inside Pakistan: Politics, Macro, Policy, Society

On the geopolitical side, Pakistan has moved from demarches and warnings to sustained cross border force, active protection of its sovereignty, and has the evidence of Afghan Taliban being partners of TTP and as part of a hostile network that also uses India backed proxies. This hardens public support for action in the west and signals that Islamabad will no longer treat Afghan soil as off limits when TTP kills its soldiers and citizens.

Domestic politics remain under strain from years of unrest, legal fights, and elite rifts, but there is no fresh collapse or new development this week. War pressure can both rally support and deepen mistrust, depending on how losses and costs are shared.

Macro numbers are better than in 2022–23: reserves are above US$16 billion at SBP, total liquid above US$21 billion; CPI is 5.8 percent; SBP and IMF see growth picking up if oil and security stay within bands. War and oil now test that story.

What This Means For You

For private investors, the main risk now runs through energy, freight, and corridor security rather than pure default. Time to be cautious on assets that need smooth Afghan trade, border access, or cheap regulated fuel.

For public markets, US–Iran tension and AfPak war have already produced some of the steepest KSE 100 swings of the past year. We’ll see FX hedges; bond duration kept short to medium; an equity tilt toward banks, exporters, and firms with pass through of fuel and freight.

For governments and IFIs, the question is how to keep pressure on tariffs and tax while Pakistan fights real enemies and shields the poorest from war and price shocks. The administration will need to link cash to concrete steps on energy and tax; build in more support for social cash and border zones; work channels with Kabul and Doha to curb TTP without asking Pakistan to “absorb” endless fire.

For corporates, supply chains that rest on one port, one sea lane, or one border crossing now carry extra risk, and fuel touches every line of cost. It is time to diversify routes and ports; add stock of key imports; change contracts to share fuel and freight risk; update plans for air space closure, target attacks on depots, and strikes on telecom links.

For households, the mix of war, oil, and domestic politics means mid single digit inflation with spikes on fuel, power, and some food, plus some risk of outages and unrest in KP, Balochistan, and big cities.

What To Watch Next Week

Three tracks will tell you most about how Pakistan’s state handles a real two front squeeze: the next IMF review, the course of Operation Ghazab Lil Haqq and Afghan replies, and energy pricing under war.

If Islamabad clears the next IMF review on time and still raises tariffs in line with the plan, markets will see that even in war the state can keep its macro word. If AfPak fighting widens or Kabul strikes deep inside Pakistan, corridor and project risk will jump again and call for a tougher stance from partners toward Kabul. If oil stays high and tariffs stall, circular debt and hidden bank risk will grow back.

The pattern this week is clear. Moves that ride on external anchors and narrow teams, like IMF reviews and cross border strikes, still happen. Moves that need broad cover at home under high prices, like deep energy and tax changes, slow down.

Interesting next few days. Until then, let’s pray for peace and better times.

Crises is a recurring side effect of governance failures, and almost everyone involved ends up firefighting and detracted. A tirade for another time.

Pakistan, operating within a fiscally constrained space, had no option but to unlock capital through Government-to-Government (G2G) investment opportunities. IMF financing provided breathing space, not revival. Pitching co-investment opportunities to sovereign wealth funds was the path to unlocking resources for economic revival and growth.

The government assembled a portfolio of infrastructure projects across energy, mining, agriculture, and critical infrastructure. They were technically sound, politically endorsed, and had passed preliminary screenings.

A high-level delegation from one of the world's largest sovereign wealth funds arrived for a bilateral investment conference. The initial reception was positive. The follow-up, however, was not.

The problem laid with the materials developed. They had been built by a generalist bureaucracy whose instinct was to satisfy internal approval committees, so they answered the wrong questions entirely: What did the country need? What could this project deliver domestically? What is the policy rationale?

A sovereign wealth fund which sat on a billion dollars it needed invested would ask none of those questions.

Someone noticed the gap. A cohort of advisors and consultants was assembled for the revision exercise. I'd be the only one without a financial pedigree in the group.

To add to the occasion, we were told a senior minister with the energy portfolio (and who was later moved to the climate change ministry) would interview the team before work could begin.

I didn't wait for the interview.

I’m an engineer by training, and I’ve spent most of my career solving problems across sectors I had no prior domain expertise in. What I’ve learned is that subject matter is rarely the real constraint.

The constraint is almost always structure.

Break any problem into its smallest components, solve each layer, and the answer assembles itself. That instinct is often faster than domain expertise, especially when the domain is new.

I took this mindset to the engagement.

I framed the question plainly:

What will it take to bridge the gap between what the government presented and what sovereign investors needed, fast enough to keep investment windows open, without rebuilding entire portfolios from scratch?

My answer was structured diagnosis in three sequential steps:

1. Map each project against what the investor looked for (which practice meant scoring each project like a buy‑side analyst would: against the fund’s strategi sector fit, alignment with overall vision, risk‑adjusted IRR, economic spillovers, ESG eligibility, ecosystem fit, ticket size, and governance structure),

2. build a risk narrative that puts contractual protections front and centre rather than buried in appendices, and

3. present deal-ready signals so investors stop asking “tell me about this project” and start asking “what do we need to do to move to the next stage?”

I completed the full diagnostic over a weekend, alongside my existing work as a fulltime consultant supporting multiple initiatives at the Prime Minister’s Office.

This included two investment pitches to illustrate my diagnostics alongside recommendations. All of it was pro bono, to save time, and to hit the ground running as soon as possible. I wanted to use the “interview” to prioritize the next steps instead of wasting more time.

Then the minister arrived, four hours late.

What followed is worth recording because it captures something about how Pakistan loses ground. He was not curious about the work. He was concerned with my age, my lack of financial credentials, and why I couldn’t produce anything useful without treating his ministry as a second home.

He had shown up four hours late to a free consultation and still felt entitled to audit its quality.

Churchill observed that the greatest lesson in life is knowing that even fools are sometimes right. The minister had a point about rigour. His error was the certainty that rigour could only arrive with the right letterhead.

I handed him the draft and left.

Lesson internalized: never volunteer in an environment that mistakes generosity for obligation. More practically, never give something for free to someone who will only value it once they have paid someone else for the same thing.

Which is what happened next.

The framework I'd built identified four structural gaps in how the portfolio had been presented.

The first was archetype mismatch. The investor had clear criteria: strategic alignment with their national development goals, returns above 12% USD IRR, supply chain or innovation components, ESG fit, and defined partnership structures. Fewer than a third of the presented projects scored high across all five. A portfolio meant to attract a specific thesis had been assembled as if the investor would browse and self-select. Sovereign funds invest to a thesis, and when materials aren’t filtered against it, the investor’s analysts do the sorting. That friction stalls momentum and signals that the sellers don’t understand the buyer. No CFA was needed to come to this conclusion.

The second gap was risk framing. Contractual protections existed, and they included government guarantees, 25-year binding off-take agreements, and international arbitration clauses. But they were buried in supplementary documents instead of sitting at the front of the narrative. Risk doesn’t disappear because you put it in an appendix. It just tells the investor you haven’t thought carefully about what they’re going to ask.

The third was deal readiness. No stage gates mapped. No approvals listed. No timeline to the next milestone. With the pathway unclear, every investor would have questions. And every question an investor asks adds friction. And friction kills deals that might otherwise close.

The fourth was strategic alignment. Not one project had been connected to the investor’s long-term capital deployment thesis. The government had failed to factor in that investors at this level don’t buy individual project merit. They buy fit with a strategy they’re already executing.

The fix for each was specific and structured:

1. Sort the portfolio ruthlessly and present only the tier that genuinely fits.

2. Convert risk disclaimers into contractual architectures, showing what structure contains each risk and how it survives a change of government.

3. Build a one-page investment memo per priority project, eight components only: value proposition, market context, business model, capital required, financial summary, key facts, and deal-readiness status.

4. Make sure that every line answered one investor question. Nothing decorative.

The framework fed into the assembled group’s direction which would later use it to produce investment teasers for the investors. Those teasers became the foundation on which the consulting firm hired later subsequently built.

Shortly after the conference, the government formally acknowledged what I’d diagnosed informally: the sovereign fund representatives at the investment conference had complained about the low quality of investment documents, and the bureaucracy lacked the skill sets to prepare investment-grade projects. The group that was assembled, with the right credentials after I dropped out, did not produce the ‘wow’ factor needed. What that was is anyone’s guess.

The government’s solution, however, was to hire a foreign consulting firm for PKR 5.43 billion over three years, approved in July 2025.

By November of that year, the Central Development Working Party postponed approval for the budget. The executing authority could not justify the work completed or demonstrate any foreign investment brought in as a result. The PKR 3 billion specifically earmarked for feasibility studies had gone entirely unused, because the consultants informed the government they could only provide strategic advice and pitchbooks.

FDI in the July-September period of that fiscal year had dropped 34%, per State Bank of Pakistan data cited in the same report.

The minister who had questioned my credentials moved to a different ministry. The problem he’d declined to engage with on a free weekend had later cost the public PKR 5.43 billion and still remained unsolved.

I would draw three lessons from this whole episode.

The gap between what governments present and what investors need is a structural one.

Governments have data. What they lack is the ability to decompose the investor’s actual decision-making process, map their materials against it, and find exactly where the story breaks down. That’s a problem-solving discipline. It requires holding two different mental models simultaneously and finding where they fail to translate. Years in investment banking help with the vocabulary. They don’t teach you to see the structure underneath it.

I’ve spent my career doing that across sectors with no obvious connective tissue. The skill that let me walk into a room with no energy or finance background and produce a workable diagnostic in a weekend is the same one I’ve used in cross-sectoral reforms, investment climate improvement, impact and pooled fund design, public health, education and industrial policy. The domain changes. The method doesn’t.

Specialist capacity is not a luxury.

The British, who designed the civil service model Pakistan inherited, have largely replaced it with specialists for modern governance problems.

Pakistan is still running on a colonial administrative architecture, one which is fraught with problems it was never built to handle. The PKR 5.43 billion consulting invoice is the recurring cost of that structural deficit, paid each time the system mistakes a credential for a capability.

Leaders don't need all the answers.

They need the judgment to recognize one when it's in front of them, even if it arrives without a tie, without a fee, and two years before the invoice does.

For: PE/VC [✓] | Public Markets [✓] | Corporates [✓] | Govts/IFIs [✓]

Pakistan is simultaneously over-governed and under-governed, and investors feel both. For leaders with exposure to Pakistan, the hard part this week is not spotting noise in headlines, but judging how much room the state really has on funding, security, and digital control before something breaks. The core problem is simple to state and hard to price: can Pakistan sustain a narrow path of “managed stress” without tipping into another balance-of-payments scare or political shock. The weekly brief covers this, through my lens and based on the signals I found worth tracking for the week. It’s something new I am trying and you will see it expand, improve and cover more dimensions in the future iterations. I’ll wait for your feedback!

This week in one page

Stabilization’s Split Screen

IMF momentum holds as security deterioration widens the execution gap

This week, our focus was on the structural divergence between Pakistan's IMF-tracked macro stabilization and its rapidly deteriorating security environment as the twin drivers of risk and opportunity for every stakeholder with Pakistan exposure.

Pakistan is in a period of constrained stability where formal default risk looks lower than in 2022–23, but external funding, domestic politics, and security still sit near the edge of what markets will accept. FX reserves have improved from the worst of the crisis but remain thin for an import-dependent country, which means any oil spike, delay in official inflows, or surge in outflows can still reopen the stress channel fast. Inflation has eased from its peak yet stays high enough to hurt real incomes and keep pressure on the central bank, while growth remains weak, so the sense of “macro normalisation” feels fragile rather than secure.

For investors and firms, the main shift relative to the previous crisis phase is in the shape of risk, not its level. Short-horizon default or convertibility fear has eased, but medium-horizon worries about execution of tax and energy reform, delivery on privatization, and the durability of the current political settlement matter more. The state has bought time; it has not bought much room to reverse course on tough measures without reopening IMF and market concerns.

Risk posture for Pakistan

A reasonable base case for early 2026 is that Pakistan remains investable on a selective and hedged basis, with country risk still priced above many frontier peers but not at outright distressed levels. That means capital allocators have to decide where controlled exposure still pays, rather than whether to exit the country entirely. In simple terms, the dominant constraint is external balance pressure, with political and security constraints sitting just behind it.

Funding risk now behaves less like a single cliff event and more like a series of rolling tests. Each IMF review, each large Eurobond or bilateral repayment, and each budget cycle tests whether Islamabad can keep delivering unpopular measures on taxes, energy tariffs, and SOE reform without triggering broad unrest or a breakdown in the coalition. If those measures stall, the next test is rarely far away: rating agencies, local yields, and the currency tend to move well before official default comes into view. Nonetheless, IMF confirmed its third review mission from February 25 to conduct discussions on the third EFF review and second RSF review. The IMF publicly stated that Pakistan’s reform implementation has helped “stabilise the economy, rebuild confidence,” and described fiscal performance as “strong” with headline inflation “relatively contained”. FX reserves stand at $16.197 billion at SBP and $21.3 billion total. CPI inflation at 5.8% in January 2026 remains within SBP’s 5–7% target range. PKR steady at 279.52 per USD. Primary surplus tracking at 1.3% of GDP.

Second order effects matter more than before. If the government leans too hard on energy and tax hikes to meet fiscal targets, it squeezes households and small firms, which then raises the risk of protests and weakens the political mandate for reform. That in turn makes reform delivery slower and noisier, which pushes up the risk premium on new funding, feeding back into the original fiscal problem. The “game” for investors is no longer to guess whether Pakistan will reform, but to judge how much reform can pass before politics and security push back.

What’s Moving, What’s Not

For those new here: Attention measures media coverage intensity, with High being more than 10 media mentions. Movement captures observable market or operational impact, with High being more than 2%. Mismatches between attention and movement often signal mispricing or early trends worth tracking.

What moved outside Pakistan

The external backdrop for Pakistan remains tight. Global rates are off their peak but stay high enough that marginal EM borrowers pay a steep price for market access, and Pakistan is still in the group where new hard-currency issuance competes poorly with concessional and bilateral flows. That keeps the country dependent on IMF support, Gulf partners, and Chinese rollovers, and it raises the bar on any move that would alarm those creditors, such as loose fiscal policy or erratic FX management.

Energy and regional security link back into this. Any firm upward move in oil prices quickly reopens the import bill channel and strains the current account, especially if growth recovers even modestly and pulls in more imports. Tension across the Gulf, in the Red Sea, or around Iran increases not only headline risk but also shipping costs and insurance premia, which show up in Pakistan’s trade bill and can bleed into domestic fuel and food prices. Border security issues with Afghanistan, or renewed friction with India, raise the prospect of higher security spending and deter some types of FDI, especially in exposed regions.

In totality, the chain runs through financing conditions. If global risk appetite worsens or sanctions and compliance rules tighten around any of Pakistan’s main partners, those partners may offer less generous rollovers or demand stricter conditions. That then narrows Islamabad’s room to slow reforms ahead of elections or in response to protests, and raises the chance of abrupt policy moves that unsettle investors.

What moved inside Pakistan

Domestic politics in early 2026 still revolve around a hybrid system cooperating and working in tandem for reforms to progress. Coalition management, court decisions on election-related cases, and informal civil–military understandings combine to shape the “band” in which policy can move. That band is not wide. Any perception of mass disenchantment, especially around prices, jobs, or perceived unfairness in accountability, quickly hardens the political constraint and slows structural measures.

On macro policy, the core story remains familiar. Fiscal consolidation relies on higher energy tariffs, broader tax effort, and some restraint on provincial and federal spending. Each move has direct distributional effects: higher power and fuel prices push up costs for industry and households; stricter tax collection meets resistance from trade and professional lobbies; cuts in development spending hurt patronage networks that politicians rely on. When this resistance rises, the temptation grows to protect some groups with exemptions or delays, which then weakens the fiscal path underpinning the IMF programme and market confidence.

Security risk is no longer a pure frontier issue confined to borderlands. Attacks in Khyber Pakhtunkhwa and Balochistan, pressure on Chinese-linked projects, and sporadic urban incidents all affect investor sentiment and the cost of doing business. Even if headline casualty numbers stay below past peaks, the perception that Western or Chinese personnel are at higher risk feeds through into higher security costs, tougher insurance, and more demanding terms from foreign sponsors. Over time, this can tilt the project mix toward those backed by states willing to absorb higher security costs, reducing the space for purely commercial deals.

Digital and information controls add another layer. Moves toward tighter content regulation, possible firewalls, or data localization rules may feel manageable from a domestic political angle, yet they raise reliability and compliance concerns for IT and BPO clients abroad. The first order effect is higher operational friction for exporters. The second and third order effects are more subtle: some clients may quietly diversify away, local firms may find their valuations discounted because of perceived “regulatory outage risk,” and the country’s narrative as a services exporter may erode even without a single headline ban.

Implications for decision makers and investors

For PE and VC funds, the main risk channel has shifted from sudden macro collapse to exit and convertibility risk over a 5–7 year horizon. Local-currency returns can still be attractive in selected consumer, export, and infrastructure-adjacent plays, but sponsors need to assume chunky FX moves at exit and consider partial natural hedges through USD or GCC revenue links where business models allow. The biggest error now is not entering Pakistan at all, but misjudging which sectors and partners can operate under a regime of tight FX, high energy costs, and intermittent regulatory jolts.

Public markets investors face a different balance. Sovereign and quasi-sovereign paper rewards careful duration and FX management more than heroic yield-chasing, with scope to earn carry when IMF and bilateral flows are on track but with sharp drawdown risk around any hint of programme slippage or security shock. Equity investors need to separate firms that can pass on higher energy and tax costs and access FX for inputs from those that sit at the mercy of controlled prices or import restrictions. In both credit and equity, state actions around SOE reform and privatisation will continue to create episodic entry points, but execution risk and political timelines matter more than headline plans.

For corporates already in Pakistan, the task is to rebase operating models for a world of higher energy tariffs, more assertive tax enforcement, and possible digital constraints. That means revisiting pricing power, supply-chain resilience, and local vs imported input mixes, along with hard-headed continuity planning for connectivity, security, and logistics. Foreign firms that treat Pakistan as a marginal market with thin management attention will struggle; those that treat it as a testbed for operating under constraint can still earn healthy returns.

Governments and multilaterals have to weigh their own constraints. Donors and IFIs want credible reform and social stability at the same time. Too much pressure on tax and tariff measures without support for social protection and service delivery risks fuelling unrest and weakening reform coalitions. Too little pressure risks another drift into arrears and under-collection. The most useful contribution now is less about new flagship loans and more about tightening the links between disbursements, delivery on core reforms, and shielded support for the poorest.

What to watch next

Three reform tracks offer the cleanest read on state capacity over the next few quarters. First, energy pricing and circular debt: whether Islamabad can keep raising tariffs and cleaning up collections without resorting to blanket subsidies again when protests bite. Second, tax and documentation: whether the authorities can broaden the base into under-taxed sectors rather than leaning again on already compliant segments. Third, SOE reform and privatisation: whether deals in power, aviation, and other core sectors actually close, not just move through cabinet approvals.

The second and third order questions follow from each track. If energy reform stalls, arrears will climb again, banks’ exposure to the power sector will deepen, and fiscal space for social spending and security will narrow, which then raises both social and security risk. If tax reform remains narrow, the state will keep “taxing inflation” through energy and indirect taxes, which further erodes trust and fuels informalisation, reducing the base in future. If SOE reform fails, private capital will demand higher returns or walk away, leaving more of the burden on already stretched public banks and external partners.

Over time, a pattern is likely to stand out. Actions that need deep political cover and long execution chains, such as across-the-board tax documentation, will move slowly or stall. Measures that can be pushed through executive orders and small teams, such as targeted digital controls or selective tariff tweaks, will move faster. For investors, that means technical reform design matters less than the ability to read constraints early, structure deals around them, and move fast when narrow execution windows open.

Closing: capability, not just calls

Why do smart funds still misprice South Asia risk? In Pakistan’s case, the answer now lies less in misreading the odds of any single event and more in underestimating how narrow the operating band has become for the state and for firms. Leaders with exposure here need to assume that tight funding, patchy security, and intrusive regulation are the baseline, not an exception that will fade.

Guessing the exact date of the next IMF review or court ruling is no longer the edge. The edge lies in building a repeatable way to read how Pakistan’s constraints move from week to week and quarter to quarter, and then wiring that reading into capital allocation, operations, and risk controls. Teams that do this tend to make two better moves: they cut avoidable damage earlier when the evidence turns, and they see where future revenue, influence, and supply security can still grow even as the map shifts around them.

This week, three questions are worth an hour of serious work.

1. Which single fault line would hurt us most if it moved faster than we expect: FX, security, or digital control?

2. Where are we still assuming Pakistan “calms down” within a year, despite the evidence of tight constraints across funding, politics, and security?

3. What is one decision we can pre-commit now, with a clear trigger such as an oil spike, border closure, or FX band break, so we are not improvising under stress?

The tension that opened this brief still holds. Pakistan is over-governed in rules and under-governed in delivery, and investors feel both. Those who accept that this environment will not soften on the timeline most plans assume, and who build the skills, systems, and judgement to turn Pakistan’s noise into a steady signal, are the ones most likely to still be writing cheques and building here when others have cycled out.

I recall a line by a friend and colleague who worked on regulatory reforms globally: A regulator on paper is not a market in practice. Over here, PVARA exists as a legal entity but the actual machinery that would make tokenization work for investors, specifically the banking connection between rupees and crypto platforms, is not yet in place.

If you’re thinking that Pakistan opening up to virtual assets might assume the market is open. It is not. There is a gap between the announcement and the working system.

Understanding Real Estate Tokenization

Real estate tokenization turns a physical property into digital tokens recorded on a blockchain. A blockchain is a shared record book that no one controls and no one can alter after the fact. Each token represents a fractional ownership right in that property. Buy ten tokens in a commercial building in Islamabad and you are entitled to your proportional share of rent and any gain in value. A smart contract, a piece of code that runs automatically, distributes those payments without anyone writing a check.

The legal vehicle holding the property is called a Special Purpose Vehicle, or SPV. Tokens represent shares in that SPV. Legal documents are stored via IPFS, the InterPlanetary File System, a decentralized storage system linked directly to the smart contract. (Whether a Pakistani court would recognize that chain of ownership remains an open question.)

What’s The Hurry?

Pakistan’s government has a point to prove. It needs to live up to its claims of salvaging the economy and ensuring its “economic revival”. With two years completed and three remaining, it’s trajectory is significantly off-track.

Therefore, the motivation is fiscal.

While I am skeptical, figures cited in recent industry discussions put somewhere between $20 and $25 billion in the crypto wallets of Pakistani citizens, outside the banking system and beyond the reach of the tax authority. Separately, data from Chainalysis cited in those same discussions puts Pakistan's crypto wallet user base at 30 to 40 million people, compared to roughly 400,000 investors on the Pakistan Stock Exchange (PSX). That means roughly an investment of $700-$1000 per user on average in crypto investments.

The government cannot tax what it cannot see. Whereas every PSX transaction is automatically taxed, crypto trades aren’t. I’m against CGT anyways, given the government doesn’t waste any instance of squeezing every cent out of its citizens without giving much in return. Nonetheless, it has to do what it has to do. And now, that’s why they have made PVARA. Largely, as a mechanism to pull that money into the formal system.

Pakistan's real estate market also holds an enormous amount of wealth that moves slowly.

Tokenization, if it works, makes property closer to a tradeable stock. Overseas Pakistanis can, for example, buy a fractional stake in a Lahore apartment without flying back to sign paperwork. Developers get funding faster to complete the otherwise stalled or failing projects. Retail investors with limited savings get access to asset classes that were previously out of reach.

The government frames this as widening access for ordinary investors. The early reality will likely be different. Overseas Pakistanis with foreign currency face no banking bottleneck and are best placed to buy in first. Local retail investors still cannot move rupees onto a licensed platform. More buyers in a market with limited supply pushes prices up. The people the government says it is helping may be the last ones who can afford to participate.

Regulatory Challenges

State Bank of Pakistan

The State Bank of Pakistan (SBP) controls whether commercial banks can send money to crypto platforms. PVARA can issue a license, but without a banking connection, that license has no working on-ramp for local investors. This has been the core tension.

The government’s approach separates the two roles.

SBP focuses on a Central Bank Digital Currency, a state-issued Digital Rupee for payments.

PVARA regulates private virtual assets as an investment class, separate from legal tender. Crypto becomes an asset to be regulated, not a currency to be tolerated. This framing helps SBP maintain its grip on monetary policy.

Treating tokenized real estate as an investment product rather than a payments instrument makes SBP’s cooperation more politically achievable.

The board structure makes this concrete. The SBP Governor sits on the PVARA board, giving the central bank direct oversight rather than leaving it to issue contradictory statements from outside.

However, stablecoins still remain an unresolved problem, and a point of contention between SBP and PVARA.

Dollar-backed stablecoins blur the line between asset and currency since you can use them for both. And SBP’s concern about effective dollarization means that category will stay restricted longer than others.

Ownership Dilemma

Tokenization requires a single, undisputed ownership record as its foundation. The blockchain is only as reliable as the property record underneath it. If the underlying title is in court, the token is worthless.

Before any property can be tokenized, the issuer must provide a clean title, a valuation report, and an information memorandum to SECP or PVARA.

That forced verification makes title disputes surface before investors are involved, unlike the traditional market where they typically surface after the sale.

Pakistan's land records outside a few urban centers are not digitized or clean enough to support a broad rollout.

Islamabad is the preferred starting point because Capital Development Authority, or CDA, properties are more centralized and better recorded than those in most provinces. One company is already operating in the SECP sandbox with a specific CDA-sector apartment submitted for approval. A national retail rollout is not close.

Islamabad is where this starts. Getting licensed to operate there is a separate question.

The Licensing Process

The Virtual Assets Ordinance 2025 sets out a three-phase process for any exchange or tokenization platform wanting to operate in Pakistan.

Phase one

Apply for a No Objection Certificate from PVARA, which requires a detailed business plan and corporate documents.

Phase two

Incorporate a subsidiary in Pakistan under the Companies Act 2017 and register with the Financial Monitoring Unit for Anti-Money Laundering compliance.

Phase three

Apply for the full Virtual Asset Service Provider, or VASP, license. This requires a Fit and Proper assessment of directors and lead personnel, proof of minimum paid-in funding specific to your license category (exchanges, custody services, and brokerages carry different thresholds), a physical office in Pakistan, and at least one senior person resident in the country.

Once licensed, you must hold customer assets in segregated accounts, maintain a cybersecurity framework and a business continuity plan, and run full Anti-Money Laundering and Know Your Customer programs.

The sandbox option lets new models test under supervisory oversight for up to 18 months before full commercial rollout, giving regulators time to observe compliance before opening the market fully.

Probable Outcomes

Two outcomes are more probable than the government’s stated ambition.

The first is bureaucratic stall: PVARA issues licenses, SBP keeps banking channels cautiously closed, and the market stays partly informal.

The second is state-led use: the government uses tokenization primarily to sell strategic holdings to large institutional buyers abroad, while retail access stays limited. With the WLF officials flying in an out frequently, this is what I’m closely tracking.

What Do Experiences Teach?

Developing economies with high inflation, money controls, and weak rule of law that pursue state-led digital asset adoption fail to reach mass adoption roughly 70% of the time.

Venezuela’s Petro and Zimbabwe’s gold tokens are the reference cases.

Pakistan’s organic crypto user base pulls the probability in a better direction. But structural friction pulls it back.

Realistically, if executed well, my reading puts broad retail success at around 35%, with a controlled market serving institutional and sovereign purposes first being the more probable near-term outcome.

If I were to track the signals that would make the real estate tokenization policy a success, I would concentrate on three tests:

1. If SBP issues guidance which explicitly allows banks to transact with PVARA-licensed platforms, its a signal that market will move. Silence from SBP means stall, regardless of what PVARA says.

2. Watch who gets the first licenses. If they go to politically connected conglomerates rather than independent fintech companies, retail access is not real yet.

3. If a participant completes the process cleanly and generates secondary market trading volume, the infrastructure works. If early projects stall or get quietly closed, push your timeline out by at least two years.

Until these conditions are met, I am considering the tokenization policy the same way I am considering the Space Policy, the Digital National Policy, and scores of others I have seen during my time at the Prime Minister’s Office - a bet that likely fails execution.

During Pakistan’s National Security Workshop, a senior official described Gwadar as “the most expensive monument to unrealized potential in the region.” Later, over tea in Quetta, a mining executive put it sharper: “Every time we get close to moving dirt at scale, something blows up. And it’s never random what blows up.”

The question I kept returning to: what if Balochistan’s instability isn’t a bug in the system? What if it’s a feature someone else designed?

I wrote about Pakistan’s chance to climb the mineral value chain in The Nation last week. But the bigger story sits underneath. Balochistan’s stability directly threatens established regional infrastructure monopolies, particularly Gulf transshipment routes and port networks. When a corridor cuts transport times by 40 percent, when a port offers China direct Arabian Sea access that bypasses the Malacca Strait, when mineral processing moves onshore and captures margin that currently flows elsewhere, the rational move for competitors is to keep that threat unrealized.

For investors, this means the violence isn’t random. It’s strategic. And it should be priced differently.

Private equity funds and infrastructure capital treat Balochistan as generic emerging market political risk. They’re missing that this is contested supply chain infrastructure in a zero-sum regional competition.

Three signals investors treat as noise.

Signal one: The rhythm of violence

In 2025 alone, Balochistan registered hundreds of attacks. The ongoing wave dubbed “Operation Herof 2.0” hit multiple locations in carefully choreographed strikes.

Track the dates: major attacks coincide with CPEC Phase II mineral announcements, the Pakistan Minerals Investment Forum, and a short while after the National Minerals Harmonisation Framework 2025 is announced.

Each time Pakistan and China publicly reposition their partnership around mineral-led industrialization, infrastructure gets hit. For global capital, each attack reads as confirmation of generic risk. When US interest rates rise and fund managers see news footage of burning checkpoints, they close the file and move to the next opportunity. The attacks happen too consistently, and too close to major announcements, to be random.

Signal two: The targeting pattern

Baloch insurgent groups explicitly frame CPEC, Reko Diq, and related projects as “plunder.” They’ve shifted from hitting purely military targets to sabotaging the logistics spine itself: roads, rail, and the perception of safety around port cities. There’s no ideology at play here. It's a strategy to make the infrastructure unworkable. Beijing’s frustration after repeated attacks on its nationals has translated into open demands for stronger security arrangements for Chinese assets under CPEC 2.0. The insurgent attacks create conditions that make Chinese security overreach more likely, which validates the insurgent narrative of “occupation,” which fuels more violence. It’s a self-reinforcing loop. Someone wants it to keep spinning.

Signal three: The regional incentive structure

Jebel Ali in Dubai handles 15 million containers a year and dominates shipping in the Arabian Sea. A working Gwadar port would cut thousands of kilometers off China's western trade routes and sit closer to the Strait of Hormuz. For Dubai's port operators, that's a direct threat to revenue. Pakistani and regional media have reported that UAE-linked interests benefit when Gwadar stays dysfunctional. At the same time, those same interests are expanding their stakes in Pakistan's other ports. The math is simple: every year Gwadar stays too dangerous to use is another year Jebel Ali keeps its monopoly.

The investor blindspot

In Chile or Indonesia, investors ask about tax rates and environmental regulations. In Pakistan, they ask: Can the military protect our sites? Who controls the roads at night? Does having Chinese partners make us safer or paint a target on our back?

An investor who wanted to setup a gold processing refinery told me they’d walked away from a Balochistan minerals deal because “they couldn’t explain burning convoys to our LP committee.” In other words, the risks were too high. Fair enough. But the reaction misses the point.

Investors see Balochistan as "too risky" when they should see it as "strategically contested." The violence isn't about whether there's demand for copper or whether the geology is good. It's about who controls the corridor that moves the copper to market. And corridor risk can be priced and structured if you know whose corridor you're threatening.

The call

Within 18 to 24 months, any billion dollar copper, gold, or rare earths deal that uses Gwadar as its export route will need two things: a formal security arrangement for the transport corridor, and either political risk insurance or a guaranteed buyer from a major government. That’s not a reason to walk away. It’s table stakes for entry into one of the last large, undeveloped minerals regions left.

For investors, the choice is simple: treat the friction as a dealbreaker, or treat it as the discount it actually is. The opportunity exists. It won’t wait forever.

Enterprises poured $30-40 billion into generative AI last year. The data reveals a stark GenAI Divide separating a tiny group of winners from everyone else. Only 5% of organizations scaled AI tools into actual workflows. Just two sectors achieved structural transformation. The rest chased pilots that never crossed to production.

These numbers contradict the surface-level adoption narrative. While 90% of firms explored AI solutions and 40% deployed consumer tools like ChatGPT, meaningful integration remains elusive. The progression tells the story: 60% tested enterprise systems, 20% launched pilots, but only 5% reached production scale.

This pattern aligns with what I've previously analyzed about pilot-production crossover failures (see The Executive's Guide to AI that Doesn't Lose its Soul). Corporate enthusiasm, disconnected from strategic objectives, consistently produces low-impact outcomes. Organizations see productivity boosts for individual tasks, but these tools rarely move the P&L needle. MIT calls this the "pilot-to-production chasm", a gap that enthusiasm alone cannot bridge.

Interestingly enough, the industry projections tell a different story. Capgemini, for example, sees rapid transformation in operations and growth. McKinsey projects $2.6-4.4 trillion in global value creation. KPMG notes efficiency gains across tech firms (as we’ve seen with the vibe coding tools like Cursor or Bolt). These optimistic views assume that capability automatically translates to results results. This is a fundamental attribution error that ignores implementation reality. It’s just like the school days when you argued for a better laptop or PC to get better grades when you and everyone knew that a major chunk of its time would be spent playing Call of Duty.

Consequently, the 95% failure rate proves the point. Deployment without integration, and a coherent long-term strategy wastes billions.

So what’s the so what? Well, the real barriers run deeper than tech and that is why most explanations miss the mark entirely. Model quality is not the bottleneck. Legal risks don't explain the divide. Data concerns fall short of the full picture. The core lies in learning and organizational fit.

Most enterprise AI tools don’t remember past interactions or understand ongoing context. This causes them to make the same mistakes repeatedly because they can’t learn from what happened before. For example, at my previous employer, several internal chatbots designed to support business development never reached maturity. The problem wasn’t the chatbot’s ability to generate responses but that the integration stopped short. There was no system in place for the chatbot to access or update company knowledge or customer histories. Each time a user interacted, the bot needed all the information re-entered. This lack of memory makes these tools reset after every session, making them blind to accumulated knowledge. Consumer AI systems like ChatGPT handle flexible and open-ended tasks well because they respond one-off to varied prompts. But enterprise AI fails when it must operate within strict, repeatable workflows that demand continuity, like tracking customer conversations or managing processes with many steps. One executive in the MIT report noted that chatbots could produce a first draft but consistently ignored client preferences over time (a trend I had experienced myself and sought to rectify). For enterprise AI to be useful beyond novelty, it must remember past interactions, adapt continuously, and integrate deeply with existing organizational data and workflows. Without these capabilities, AI tools remain limited, like toys that entertain but don’t deliver real value.

Learning from embedded success models

The organizations crossing the pilot-to-production divide don't treat AI as a separate project. They embed AI expertise directly within teams, redesigning workflows and building systems that evolve through actual use. This means AI specialists work alongside teams inside the organization, not as external consultants delivering reports.

Palantir's forward-deployed engineers exemplify this approach. They don't just drop off software and leave. They embed within client teams, study existing workflows in detail, and identify where AI creates the most value. Then they build AI systems that evolve based on real-world usage and feedback. OpenAI uses a similar model with a steep $10 million entry fee designed to break "pilot purgatory." This fee creates immediate accountability, ensuring pilots rapidly convert to production scale. It eliminates endless internal debates and unproductive workshops, focusing resources exclusively on turning experiments into working systems.

This approach spans industries and sectors. Success requires shifting from reports and demos to embedding teams that redesign workflows with AI as a core component. The technology stops being a sideline experiment and becomes integral to the organization's operating system.

This embedded approach also addresses what I've observed firsthand and the report documents: shadow adoption. Workers, frustrated by stalled official AI efforts, seek out personal tools like ChatGPT when company-approved solutions fail to deliver. Rather than treating this as a compliance problem, leaders should recognize it as free market research revealing urgent workflow needs.

This underground usage shows real demand for AI tools that fit everyday work. Organizations that succeed respond by training employees to work effectively with AI assistants that learn and improve over time. They change procurement processes to choose AI tools that grow with their needs and empower managers to lead human-AI collaboration.

This human-AI partnership bridges the GenAI Divide. AI tools must have memory systems to learn from ongoing feedback. Workflows must be fundamentally redesigned to allow people and AI to work as partners, not separate silos. Vendors meeting these integration requirements scale quickly. Those that don't end up stuck in endless pilots, never moving to real deployment.

The path forward

Crossing the GenAI Divide requires alignment before action. Organizations must map AI initiatives to core strategic objectives first—whether revenue growth, operational efficiency, or sustainability targets. Without this north star alignment, efforts scatter across disconnected pilots that impress in demos but crumble under operational pressure.

The measurement framework must span financial, customer, and process dimensions. Embed technical experts who can redesign workflows for human-AI collaboration. Train teams for adaptive partnering rather than tool usage. Monitor broader risks including talent competition and regulatory evolution. Together, these steps build an AI-enabled system resilient to evolving operational, talent, and regulatory landscapes.

This creates positioning for the emerging agentic future. Organizations that commit to this integrated approach now will transform today's $40 billion waste into tomorrow's competitive advantage.

The framework is clear: treat AI as operating system evolution, not feature addition. Measure integration success against strategic purpose. Adapt continuously as AI capabilities reveal new operational possibilities.

The GenAI Divide separates organizations that deploy technology from those that integrate intelligence. Which side will your organization choose?

If your organization faces these AI integration challenges, my AIG-OS™️ framework bridges the pilot-to-production gap. Through rapid readiness assessments, governance implementation, and embedded advisory support, I help leaders align AI with strategic objectives while ensuring compliance and measurable impact. The approach delivers 50-70% faster AI approvals and sustained competitive advantage. For a confidential discussion on crossing the GenAI Divide, reach out directly at syed@shehryr.com or connect with me on LinkedIn.

This approach costs more than reputation. When a fund manager makes an investment decision based on AI analysis, or when a national security expert evaluates threat scenarios, prompt quality isn't optional. It's the difference between signal and noise, between strategic advantage and expensive mistakes.

The problem isn't that executives lack technical skills. The problem is that prompting has no systematic framework, no quality control, no measurable standards. We've industrialized every other decision-making process but left our most powerful cognitive tool to improvisation.

What professional prompting actually looks like

The Prompt Evaluation Assistant™️ I have created solves this by treating prompts like what they are: critical business infrastructure that demands engineering rigor.

The system operates through five distinct cognitive layers, each addressing a specific failure mode that plague executive AI use:

1. Initialization Layer: Before touching your prompt, the system maps your domain, defines success metrics, and activates relevant knowledge bases. No more generic responses that miss industry context.

2. Expertise Acquisition: The evaluator loads 50+ prompting techniques, from basic few-shot methods to advanced tree-of-thought reasoning. It maps your prompt elements against proven frameworks, identifying which techniques would amplify your specific goals.

3. Adaptive Response: Here's where most systems fail. The Prompt Evaluation Assistant doesn't apply cookie-cutter solutions. It selects from dozens of dynamic pathways based on what your prompt actually needs. Ambiguity triggers different responses than complexity issues or ethical concerns.

4. Self-Optimization: The system recursively critiques its own analysis. Think of it as having a McKinsey team review their own recommendations before presenting to you.

5. Neural Symbiosis: Rather than delivering final answers, it creates collaborative refinement loops. You maintain control while the system provides systematic improvement suggestions.

The 42-point quality matrix

Most prompt tools offer vague feedback like "be more specific." My prompt evaluator scores your prompts against 42 distinct criteria, grouped into seven critical dimensions:

Clarity Metrics (6 points): Specificity, Instruction Precision, Ambiguity Detection, Readability, Context Setting, Constraint Definition Accuracy 

Benchmarks (6 points): Factual Grounding, Source Verification, Output Reliability, Relevance, Hallucination Mitigation, Edge Case Handling Robustness 

Testing (5 points): Failure Mode Analysis, Consistency, Adaptability, Iterative Refinement, Feedback Integration

Each criterion scores 1-100, creating measurable baselines for improvement. When your prompt scores 65/100 on "Hallucination Mitigation" but 90/100 on "Goal Alignment," you know exactly where to focus refinement efforts.

The Recursive-Prompt-Optimizer Engine

The core innovation lies in systematic iteration. The system doesn't just evaluate your prompt once. It runs exactly three optimization loops, each following a structured analyze-generate-evaluate-test-revise cycle.

Loop One dissects your original prompt, identifies core weaknesses, and generates an improved version. Loop Two tests that version against edge cases and failure modes, then refines further. Loop Three produces the final optimized prompt with complete performance documentation.

Between loops, you receive concise differential reports:

Score changes: Clarity +15 to 85; Overall average: 78/100 

Summary of edits: Added verification steps, incorporated chain-of-thought reasoning 

Top 3 lowest scores: Completeness (62), Context Window Budget (70), Compliance Fallback (75)

This granular feedback transforms prompting from art to science.

Why should you be using it

AI capability advances monthly, but most executives still use it like a slightly smarter search engine. Meanwhile, sophisticated competitors are building competitive moats through superior AI interaction design.

The organizations winning with AI aren't just using better models. They're using systematically better prompts. They're extracting more signal, reducing hallucinations, and integrating AI outputs into decision workflows that scale.

The Prompt Evaluation Assistant framework recognizes that different contexts demand different approaches. A due diligence prompt needs different optimization than a strategic planning prompt or a risk assessment query. The system's 50+ dynamic pathways automatically adjust based on your specific use case.

Conclusion

You don't need to become a prompt engineer to benefit from this. The system handles the technical complexity while preserving your domain expertise and decision-making authority.

The framework is available as a custom GPT here, designed for executives who need systematic AI optimization without systematic overhead.

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Yet, most firms chase AI without tying it to their core goals. They end up with scattered projects that drain resources. After observing this trend in the organizations I have been advising recently, I wanted to explore why linking AI to its North Star is critical. Additionally, I use these reflections to also illustrate how AI can challenge and redefine that North Star.

Why most AI investments miss the mark

Short answer: It’s a lack of direction. Companies rush into AI adoption driven by competitive pressure and market hype, but without a clear connection to their fundamental objectives. Whether it's revenue growth, customer satisfaction, sustainability, or innovation, these core goals (your organizational North Star) should guide every AI decision.

Without this alignment, teams work in silos, creating fragmented pilots that might show promise individually but fail to scale or create meaningful impact. Resources scatter across departments, each pursuing their own AI experiments without considering how they serve the bigger picture.

When AI should challenge your North Star (and not just serve it)

Most leaders assume North Stars remain fixed. This is where most strategic thinking stops when it shouldn’t. While aligning AI with your North Star is essential, I’ve seen innovative leaders go further and let AI question whether that North Star still makes sense.

Consider Singapore’s Smart Nation Initiative where the country’s government initially focused AI on improving bureaucratic efficiency and public service delivery. But AI analysis of citizen data, urban flows, and resource consumption patterns revealed a deeper insight: the city-state's survival depended not on administrative efficiency, but on adaptive resilience in the face of climate change, aging demographics, and economic volatility. This shifted their North Star from "efficient government" to "antifragile nation." Now their AI initiatives focus on predictive healthcare for an aging population, dynamic pricing for scarce resources like water and energy, and real-time urban adaptation systems. The result is a governance model that helps the entire nation adapt and thrive amid uncertainty.

It is also worthwhile to look at Maersk’s AI-driven transformation. The shipping giant initially deployed AI to optimize route efficiency and reduce fuel costs, focusing on improving margins. However, AI analysis of global trade patterns, weather data, and regulatory trends revealed that their real competitive advantage lay in becoming the backbone of sustainable global commerce. The data showed increasing demand for carbon-neutral shipping and supply chain transparency. This insight shifted Maersk's North Star from pure cost optimization to becoming the world's first carbon-neutral logistics company by 2050. They're now investing billions in green methanol vessels and AI-powered emissions tracking, turning environmental compliance from a cost center into a revenue driver that attracts premium clients willing to pay for sustainable shipping.

General Electric provides another compelling example. They initially deployed AI for predictive maintenance to improve operational efficiency. But the data revealed a much larger opportunity in energy transition. GE pivoted its North Star toward clean technology, adding billions in value during global shifts toward renewable energy.

These questions demand systematic exploration. And that’s why AI alignment shouldn’t be left to chance or delegated to individual departments.

Why a top-down AI strategy matters

The GE example illustrates why executive leadership matters in AI deployment. It wasn't a middle manager in the maintenance department who decided to pivot the entire company toward clean technology. It required C-suite vision to recognize that the AI they deployed for operational improvements was in fact uncovering a fundamental shift in GE's strategic positioning. Similarly, it took Singapore’s national leadership to pivot the use case from efficiency improvements to what I like to call a “cognitive architecture” where AI is supporting resilience and preparedness amidst uncertainties.

Without top-down guidance, that predictive maintenance insight might have remained a cost-saving initiative in the operations department, missing the billion-dollar opportunity in energy transition. Same would have been the case for Smart Nation Initiative as it would have maintained the status quo with a myopic focus on service delivery improvements. Bottom-up AI experiments, while valuable for innovation, often lack the organizational authority to challenge and reshape the North Star itself.

This leadership imperative becomes even more critical when you consider the broader implications of AI adoption. Beyond strategic pivots, leaders have to navigate the human cost of transformation too. AI-driven automation is expected to displace 85 million jobs globally by 2025 while creating 97 million new ones in high-skill areas. In advanced economies, this could boost productivity by 40% and lift GDP growth by 1-2 percentage points annually. However, in emerging markets, it risks widening inequality if not managed thoughtfully.

In addition to the economic implications, it becomes important to understand that AI alignment doesn’t happen in a vacuum. Geopolitical realities also come into play requiring executive level action. For example, US-China tensions are creating talent wars and export controls that limit technology access. The EU AI Act requires extensive risk assessments that can delay deployments. A US tech firm might find itself slowing rollouts for compliance while a Chinese rival advances quickly in less regulated markets. Smart leaders factor these geopolitical realities into their AI alignment strategy, ensuring their North Star accounts for regulatory landscapes, talent availability, and supply chain dependencies.

The need for a top-down AI strategy extends to cultural adaptation. AI changes processes and reshapes organizational culture. Employee resistance signals where cultural adaptation is needed. Leaders who address these concerns help reinforce the shared purpose of an AI-enabled organization. Leaders who ignore them can expect to see implementation stalling regardless of technical excellence.

The human dimension of technical change

Infosys automated coding processes in India and faced initial worker resistance. Leaders used this feedback to design retraining programs focused on AI oversight and management for 300,000 employees. The cultural intelligence led to smoother adoption and stronger employee buy-in. The resistance became valuable input rather than an obstacle to overcome.

This human-centered approach recognizes that AI adoption succeeds or fails based on people, not technology. The most sophisticated algorithms cannot overcome cultural resistance. The simplest tools can transform operations when implemented with cultural sensitivity.

Workforce concerns also reveal strategic blind spots. If employees resist AI because it threatens job security, leaders can redesign roles to complement rather than replace human capabilities. If resistance stems from loss of professional identity, training and upskilling programs can help workers develop new AI-enhanced skill sets. These human insights often point toward better strategic directions than purely technical analysis.

A practical framework for dynamic alignment

Organizations that successfully balance AI alignment with adaptability follow four interconnected stages. Each stage builds on the previous one and creates conditions for the next.

First, leaders need to make sure that North Star metrics are defined clearly before the AI deployment begins. Revenue targets, sustainability goals, customer satisfaction scores, whatever drives organizational purpose, must be explicit. This clarity enables systematic auditing of existing processes for AI potential. The audit often reveals gaps where current goals limit innovation rather than guide it. These gaps become opportunities for strategic evolution.

Next, they need to set executive priorities that tie directly to their organization’s North Star. Leaders analyze macroeconomic and geopolitical risks first, including job displacement, regulatory changes, and talent competition as they all shape what becomes possible. Pilots follow this analysis, testing both alignment and goal evolution. Each experiment challenges current assumptions rather than just optimizing existing processes. This dual focus prevents tactical thinking from overwhelming strategic vision.

Once implementation gets the requisite strategic oversight, organizations must govern for continuous adaptation. Three mechanisms create sustainable governance:

1. Feedback systems that capture both performance data and cultural impact signals,

2. Measurement cycles that respond to changing internal and external conditions,

3. Rapid response capabilities when AI reveals new strategic direction.

Lastly, organizations must know that partners and suppliers shape what AI strategies become viable. Their AI adoption affects organizational goals directly. Smart leaders align with external stakeholder expectations from shareholders, regulators, and communities before implementation challenges emerge. They build resilience against supply chain and talent disruptions that could derail initiatives. This external focus prevents internal optimization from creating external vulnerabilities.

The framework operates as a continuous cycle. Assessment reveals new strategic directions. Implementation tests these directions against reality. Governance adapts to emerging challenges. Ecosystem mapping identifies new constraints and opportunities. Each cycle refines both AI capabilities and organizational purpose.

Thinking through a framework like this allows leaders to act on current opportunities and prepare systematically for future disruptions.

The specific applications vary significantly based on organizational context and geographic location. In advanced economies like the US, Netflix aligns AI with customer retention through personalized recommendations. Human oversight maintains ethical content curation. The focus remains on sophisticated automation with strong governance. In emerging markets like India, companies such as CropIn use AI for crop yield predictions aligned with food security goals. They start with satellite data analysis for advisory services. This approach creates new jobs and automates manual forecasting. The development priorities differ from advanced economy applications. In Kenya, firms use AI for credit scoring tied to financial inclusion goals. They leverage mobile data to extend loans to small farmers despite data scarcity and low literacy challenges. The constraints shape both technical and strategic choices.

The strategic choice

Every leader faces the same core question: How can they align AI with current goals and allow it to redefine them? The answer requires holding two perspectives simultaneously. Stay committed to your North Star but remain willing to evolve it based on evidence.

The leaders who master this balance will define competitive advantage in the next decade. They will use AI as both tool and challenger to keep strategies relevant in a shifting world. Their organizations will achieve precision and flexibility by designing thoughtful strategies from the start.

I strongly believe that organizations that figure this out will thrive. Those that chase AI without strategic direction will join the billions in wasted spending. The difference lies not in the technology itself but in the wisdom to use it well.

What challenges have you observed in aligning AI initiatives with organizational goals? How has AI changed your thinking about your company's core mission? I’d love to hear your experiences.