From economic boom to fragility: Muneer Kamal reflects on Pakistan’s financial history

Pakistan’s economy has rebounded from its lowest point but remains fragile, with significant challenges ahead, said Muneer Kamal, CEO of the Pakistan Banks’ Association and former chairman of the Pakistan Stock Exchange and National Bank of Pakistan.

Speaking in a podcast with Kamran Khan, Kamal emphasized the resilience of the State Bank of Pakistan (SBP), describing it as a strong institution that has withstood economic turmoil over the past four decades.

“I can say with confidence that the ethos of the State Bank has remained unchanged for 40 years,” Kamal said. He cited its response to Pakistan’s 1998 nuclear tests and the COVID-19 pandemic as evidence of its ability to navigate crises.

Kamal stressed that SBP employees at all levels take their jobs seriously. He credited past leaders like Dr. Ishrat Husain for elevating the institution and warned against political interference with the governor’s role.

“The position of the State Bank governor is extremely important. He should not be called into meetings unnecessarily or be subjected to undue pressure,” he said.

Economic recovery, but concerns remain

Kamal acknowledged that Pakistan’s economy appears to be recovering but cautioned that vulnerabilities persist.

“It looks like we’ve moved up from the lowest level, but the challenges are still there,” he said, adding that economic self-sufficiency is necessary to restore confidence.

He highlighted Pakistan’s fragile macroeconomic conditions and the need to address fiscal gaps. “The IMF keeps asking how we will fill these gaps, and that’s something we have to figure out,” he said.

Kamal noted that Finance Minister Muhammad Aurangzeb and SBP officials are working to stabilize the economy but stressed that the biggest concern remains economic uncertainty.

Pakistan’s lost economic momentum

Reflecting on Pakistan’s economic history, Kamal recalled that before 1958, the country was growing rapidly and even surpassed India in per capita income.

“In 1947, Pakistan inherited only 25 or 26 out of 950 industrial units, yet we progressed swiftly,” he said. “The Memons and other business communities played a significant role in rebuilding the economy.”

He credited industrial families like Adamjee, Dawood, and Habib for driving economic and social development in the early years.

However, he dismissed the notion that Pakistan’s economic success began with Ayub Khan’s presidency, arguing that momentum had already built in the preceding decade.

Government’s growing reliance on banks

Kamal also raised concerns about the government’s increasing dependence on bank loans.

“In 2008, government borrowing from banks made up 24% of expenditures. By the first quarter of 2024, that number had surged to 84%,” he said.

He added that banks’ investments are overwhelmingly tied to government securities, limiting private-sector lending. “In 2019, 95% of bank investments were in government papers. By 2023, this figure ballooned, making banks an unofficial pillar of the state,” he noted.

While banks have profited from high interest rates, Kamal said such a system is unsustainable. “Without fixing macroeconomic issues, even exporters will fail,” he warned.

Pakistan-India relations: A pragmatic approach

Discussing regional ties, Kamal shared a personal anecdote about his father, who served in Pakistan’s military and later worked in track-two diplomacy.

“My father fought three wars and lost family members during Partition, but he held no bitterness toward India,” Kamal said. “He believed Pakistan should not bow to India but also should not engage in constant conflict.”

Kamal urged Pakistan to adopt a balanced economic approach with its neighbors.

Pakistan’s political leadership, he noted, has reached a consensus on supporting businesses, but bureaucratic resistance remains a hurdle. “No middle-level bureaucrat in India would harass a businessman the way it happens in Pakistan,” he said.

Kamal emphasized that Pakistan must foster a pro-business environment while ensuring fair taxation. “Nurture business growth, tax them fairly, but don’t harass them,” he said.