In the last two weeks, I published three pieces in the Friday Times, in which I proposed a “controlled, negotiated” economic default. It was not a random statement that I made on a TV programme. It was the outcome of long conversations with those who understand the economy and the system – the very “system” that the DG ISPR, Lt Gen Ahmad Sharif, declared needs a total reset. This term, “system reset”, was used by Dr Hasnain Javed on Federal Post programme Political Zone, while talking to the former finance minister, Dr Salman Shah. I am not saying that Mohsin Naqvi or Lt Gen Sharif picked up our phrase in their recent statements, but their statements do endorse what we have been saying for over a year: the economy has collapsed, and the time for normal economic reforms and structural changes has passed.
How we got here is another story, and everyone can add something on how it happened. What is important to figure out are the factors that have compelled the military spokesman and the interior minister, who is also known as the establishment’s voice in the federal cabinet, to make these statements. To be able to understand this, we need to go back to the drawing board and see how it all began.
Following the general election of 8 February 2024, the general narrative was that the Imran government had messed up the economy and that the country was near default. The PMLN presented its résumé of having a highly capable and experienced team, and a track record of development work, especially in Punjab. They were able to impress the establishment and persuade it of their personal connections with the Gulf monarchies. The idea was that, once they were in power, investment would flow in from these countries – hence the SIFC (Special Investment Facilitation Council) was born, with the promise of $100 billion from Arab friends. Clever as they are, they gave the credit for this initiative to COAS Asim Munir. The Board of Investment was retained, which has the same mandate as that given to the SIFC. Instead of bypassing the regulations thought to be slowing foreign direct investment, this doubling of roles between the SIFC and the Board of Investment further complicated the system. No investment came. It failed. The weight was shifted onto the shoulders of the establishment – it was their brainchild.
The Strategic Mutual Defence Agreement (SMDA) was tabled as a route to economic revival. It was perhaps the same draft that the former foreign secretary, Shamshad Ahmad Khan, has talked about a number of times on my Federal Post show “Talking Politics” – the one that the then PM Nawaz Sharif had shown him on the flight en route to Riyadh in 1998. According to Ambassador Khan, he asked PM Nawaz where the draft had come from. “Leave that aside,” was the response. He then asked the foreign minister, Gauhar Ayub, who was on the same flight, and between them they were able to convince PM Sharif to abstain from it, as it would jeopardise Pakistan’s diplomatic architecture in the Gulf. The circumstantial evidence, as things developed thereafter, points to the possibility that the SMDA signed between Pakistan and Saudi Arabia in September 2025 was probably the same draft from that 1998 flight.
The next idea was to forge military alliances with Saudi Arabia and other Arab nations, in the belief that this would secure investment from the oil-rich monarchies.
The following events – hastily joining the Board of Peace, and PM Shahbaz’s nomination of President Trump for the Nobel Peace Prize – together made up a series of events that were setting up Pakistan for what was about to come next: the US attack on Iran on 28 February. Pakistan was strategically tied to the crisis in the Gulf through the SMDA, the Board of Peace, and incessant cosying up to the Americans, at the cost of freezing the BRI flagship project, CPEC. Under the current IMF programme, Pakistan is barred from developing economic zones under CPEC. The idea was that if Pakistan aligned with the US and forged military alliances with the Arab nations, investment would flow into Pakistan – it didn’t. Instead, Pakistan got dragged into an unwanted situation when the war began. That was when we saw Field Marshal Asim Munir take the diplomatic route. He employed his trusted aide, Mohsin Naqvi, for diplomacy between Iran and the US. Now it is abundantly clear why Foreign Minister Ishaq Dar – a close aide of the former PM Nawaz Sharif who was keen to sign that 1998 draft with the Saudis – was kept at a distance when peace diplomacy began between Iran, the US and the Arab countries, leading to the signing of the MoU on 17 June.
The Sharifs were able to live up to the expectations of their Arab friends, but they failed to live up to the promise of bringing investment into Pakistan. Reports also suggest that Pakistan struck an oil deal with Iran as tensions over the Strait of Hormuz heated up. Iran also opened the International North-South Transport Corridor (INSTC), which Russia approved of as well. At the same time, Pakistan and Iran began building greater infrastructure for bilateral trade, with the capacity to handle the cargo of two thousand trucks daily. When this was reported to President Trump, his response was “Yes, I know about it”.
While all this was happening in the background, on the surface the government displayed a great deal of bad governance and economic mismanagement, and stories of massive corruption began to circulate. The government ministers cleverly began to endorse the notion of a hybrid system, implying that they had no real power and that all key decisions were made in Rawalpindi. The blame was conveniently shifted. The media bought it: they had brought them into power, so they were responsible for whatever happened. Another layer was added by the People’s Party’s resistance to the 28th Amendment, the creation of new administrative units, the making of Karachi into a federal territory, the restructuring of the NFC award, and changes to water distribution.
The question now is: if the PMLN and the PPP concede to the demands of the establishment, can all be well again? Or has the arrow already left the bow? On a fair assessment, the latter seems more likely, as too much baggage has accumulated for the government, and the establishment may not want to carry that weight.