Record remittances hit $41.6 billion in FY26, nearly double what they were seven years ago. Merchandise exports, meanwhile, barely moved, stuck in the same narrow band year after year. And yet Pakistan still posted a current-account deficit of $139 million. Sit with that for a moment: a record inflow of dollars, and the external account still ended up in the red.
Business Recorder’s editorial page caught the contradiction. A companion op-ed named the mechanism more precisely: Pakistan has let remittances substitute for the export growth that should be happening instead. Remittances are, at bottom, the fruit of exporting productive labour, while domestic productive capacity stays flat. They haven’t built genuine external resilience so much as bought time, postponing the harder investment decisions the country actually needs to make.
What none of the coverage did was connect this back to graduate unemployment, a pattern documented by Haque and Nayab. If local firms can’t absorb educated workers, remittances aren’t evidence of “external-sector strength.” They’re evidence that Pakistani graduates and skilled labour find more use for their skills in Riyadh or Dubai than at home. That’s not a resilience story. It’s an indictment. Coverage split it into three unrelated stories when it was really one story all along.
Foreign Investment
Foreign capital kept moving through the week, though rarely toward anything productive. Pakistan actually paid out more to existing foreign investors than it took in through fresh FDI during FY26, a fact Business Recorder reported plainly but nobody pushed on. The distinction that matters, and that most outlets blur entirely, is between portfolio purchases of government securities and capital flowing into factories, technology, or exports. Treasury bills fund the state’s budget. They say nothing about confidence in the productive economy. Conflating the two is how government messaging becomes economic reporting.
Bank Lending
Profit did sharper work here, reporting that banks borrowed Rs5.9 trillion from depositors in FY26, up from Rs5.4 trillion the year before, even as private-sector credit is expected to shrink by Rs1.4 trillion. Banks chose government paper because it’s safer and pays better; SMEs got squeezed out as a result. None of this is new; PIDE’s regulatory research flagged the same crowding-out pattern years ago.
As of March 2026, private-sector lending made up just 22 percent of banking assets. India’s figure sits around 50 percent; Bangladesh manages 40 percent. Pakistani banks are running record leverage while funnelling nearly everything into government debt, and the advance-to-deposit ratio has fallen to one of the weakest levels in the region. Reporting “private credit growth” or “expanding bank risk appetite” without setting it against that backdrop lets official language stand in for actual analysis.
Cotton: Sectoral Journalism, Almost
Dawn came closest to real investigative work on cotton. Output collapsed from 14 million bales to 6.85 million, and the story tied that fall to import costs, lost export earnings, and delayed policy decisions, genuine sectoral reporting. But it leaned too heavily on OICCI’s framing. A stronger piece would have weighed competing explanations: seed quality, a failing research system, water constraints, support-price distortions, pesticide shortages, provincial extension services that don’t function, and the political economy of sugar consistently outcompeting cotton for acreage and subsidy.
A crop losing more than half its output in a decade isn’t a weather story. It’s institutional failure, compounded year after year, and deserves the same scrutiny as any other governance collapse.
The MDR Relaxation, Another Gift to Banks
The minimum deposit rate floor was narrowed rather than removed. As of August 1, it now applies only to accounts under Rs10 million. Everything above that, trusts, companies, wealthier individuals, lost their guaranteed return. Banks are expected to pocket an estimated Rs20-45 billion annually from the repricing.
Officials framed this as compensation for scrapping the remittance-subsidy scheme, under which the government had paid banks to bring in foreign remittances, a policy economists (myself included) have criticised for years as unjustified. Ending that subsidy made sense. What made no sense was replacing it with another one, letting banks cut returns on larger deposits instead. No outlet asked the obvious question: why did ending an unjustified subsidy require inventing a new one? Nor did anyone connect this decision to what leading economists have been saying publicly for years.
Diplomacy as Press Release
Coverage of the UK trade talks simply reproduced the press release. Both governments agreed to “strengthen engagement.” The high commissioner praised reform. End of story. No review of past trade commitments made and quietly abandoned. No named barriers. No deadlines. No success metrics. The press release supplied the entire narrative, both fact and interpretation.
The Op-Eds: Scepticism Within Silos
Opinion pages did better than news pages, more questioning, but still fragmented. Business Recorder warned that “external calm is more fragile than it appears,” correctly noting that the near-balanced current account rests on remittances and suppressed demand rather than genuine strength. The News ran a piece titled “Migration by design,” linking migration to poverty and absent opportunity, one step removed from the brain-drain argument above.
“Rethinking trade policy” in Dawn rightly rejected export targets as a fix, but stopped short of linking trade failure to energy pricing, customs, taxation, and the broader permission economy that explains why trade policy alone can’t repair exports. A Business Recorder piece on government mandates asked the sharpest question of the week, which tier of government should do what, but didn’t follow it through. Reshuffling functions between provincial bureaucracies isn’t decentralisation to ordinary citizens; local government remains hollow, both fiscally and politically.
“Peacemaking with shopkeepers” usefully challenged the latest traders’ tax scheme, but missed that “undocumented” commerce is increasingly a myth. Electricity, banking, property, and supply chains already make most retail activity visible. The real problem isn’t invisibility; it’s political selectivity and distrust, and more fundamentally, a disorganised market suffering under predatory government practices that function like an informal tax, eroding trust and growth. Rather than working with traders to build the market and end predatory taxation, the state’s instinct is to tax them further, a point research has made repeatedly, even as commentary seems unaware of it.
Two Columnists, One Missing Argument
Two Dawn columnists effectively argued past each other without acknowledging it. Ishrat Husain struck a cautiously optimistic note, arguing that external goodwill and Saudi deposits could convert into productive investment if the state managed capital flows carefully. Khurram Husain was openly sceptical, pointing out that Pakistan has repeatedly mistaken inflows, deposits, and geopolitical rents for genuine economic recovery. Both were partly right. Neither named what these inflows have actually been used for, decade after decade: postponing reform.
That’s the real story. Dollars don’t fail to produce growth because there aren’t enough of them. They fail because they let predatory governance avoid changing itself. External money, Saudi deposits, IMF rollovers, remittances, geopolitical rents, allows the government to keep doing what it’s already doing: funding civil-service perks, handing out plots and PSDP projects to the connected, offering protocol privileges to the well-placed, and selling regulatory discretion to those with access. The state sits on decades of domestic research, PIDE’s own work on the permission economy, regulatory audit findings, institutional analyses of why markets fail to function, and ignores nearly all of it, because the incentive structure rewards extraction over learning.
Investment doesn’t materialise in this environment because private investors need predictability, rule of law, and competitive markets. What they encounter instead is negotiation with officials whose incentive is personal benefit, not economic growth. A factory owner watches a plot go to a VIP’s nephew instead of competitive bidding. A trader watches customs officials extract bribes from a tariff system deliberately built to be complex. An exporter watches tax authorities harass productive firms while connected smugglers operate freely. Why would anyone invest?
External money masks all of this. It lets the government keep postponing the decision to reform itself. The cycle repeats: inflow arrives, celebration follows, consumption expands, imports surge, reserve pressure builds, the exchange rate cracks, the next crisis hits, and the government goes cap in hand again. The private sector, watching this pattern repeat year after year, sees no reason to invest in manufacturing, exports, or long-term productive capacity.
Growth only happens when capital flows into competitive markets, transparent allocation mechanisms, and cities capable of absorbing productive labour. Absent that, the money is just a postponement, a way for predatory governance to survive another budget cycle without ever having to reform itself.
The Pattern
Five stories: remittances, portfolio flows, private credit, cotton, skills. Each reflects the same underlying condition: an economy where the state borrows first, where everything else gets crowded out, where labour exits because firms can’t absorb it, and where domestic research documenting the underlying causes sits on shelves, uncited.
