“We Musalmans in general and young men in particular, do not know the value of money. A paisa saved today is two paisa tomorrow, four paisa after that and so on and so forth. Because of our addiction to living beyond means and borrowing money we lost our sovereignty in this Subcontinent.” – Muhammad Ali Jinnah
Enter Arkad, the protagonist from ‘The Richest Man in Babylon’, a poor scribe who became the wealthiest man in his city. His lesson hauntingly reverberates Jinnah’s warning to our nation. Poverty, Arkad argues, is rarely the result of low income alone. It is the outcome of spending without restraint and failing to preserve surplus. Wealth begins when one spends less than one earns and allows that surplus to compound. Although Arkad’s advice was intended for individuals, the same principles apply to modern nation-states.
Here, a distinction must be drawn. Those reading might pause and think: what about spending borrowed money? The problem is not compounding debt, but its application. Borrowing to build productive capacity can compound wealth; borrowing to fund consumption compounds fragility. Going on a spending spree and not planting any financial seeds will almost every time result in disaster. Expecting a different result from the same behaviour would amount to little more than repeating what has long been described as insanity.
Gohar Ejaz, a prominent business figure, has argued that Pakistan’s debt crisis is essentially an expenditure problem rather than a failure of taxation. According to EPBD’s data, tax revenue has increased by 302 per cent in the last decade, from Rs2.91 trillion to Rs11.7 trillion, often through aggressive tax hikes and disproportionate pressure on documented sectors.
During the same period, however, public debt surged by 365 per cent, jumping from Rs17.3 trillion to Rs80.5 trillion, far outpacing revenue growth. Thus, for every additional rupee collected in taxes, Pakistan added Rs7.2 to its debt, with total debt rising by Rs63.2 trillion over the decade despite a Rs8.79 trillion increase in tax revenue. The age-old lesson keeps coming back to haunt the Pakistani nation, from Jinnah to Arkad: revenue alone cannot rescue a state that refuses to discipline its expenditure.
Building wealth at both the individual and state levels involves accumulating surplus and investing it productively. Arkad’s wealth in ‘The Richest Man in Babylon’ is not built through saving money alone. He invests that money into profitable ventures that multiply his wealth. Modern economies follow the same rule. They attract capital that builds factories and technologies that expand export capacity.
Pakistan, in stark contrast, is losing that capital fast. Foreign direct investment fell by more than 43 per cent in the first half of FY26, declining from $1.4 billion to $808 million, and turned net negative in December as $457 million exited against $322 million in inflows. Nearly three-quarters of these inflows came from China and Hong Kong, showing how thin and concentrated Pakistan’s capital base has become.
Capital investment has fallen to a 50-year low. Government borrowing has crowded out private-sector credit, with banks lending Rs16 trillion to the state over the past two and a half years, while private-sector credit stood at just Rs2.2 trillion. Investors build where they trust institutions and policy stability, and Pakistan’s inability to attract diversified long-term capital, including its failure to privatise major state assets, suggests it is not converting revenue into productive assets, the foundation of Arkad’s wealth.
The flight of foreign direct investment, among other factors, has led the IMF to revise Pakistan’s growth outlook downward to 3.2 per cent, down from 3.6 per cent last year. The World Bank estimates Pakistan’s trend growth at approximately 3.0 per cent, while global growth is expected to remain around 3.3 per cent. For a country still struggling to catch up, growing at the global average simply means falling behind more slowly.
Developing economies typically need to grow at 6-8 per cent for sustained catch-up – and Pakistan is nowhere near that trajectory. More importantly, the current global growth cycle is being driven by unprecedented investment in artificial intelligence and advanced manufacturing, productivity-enhancing technologies, where Pakistan is largely absent. While global capital is compounding productivity, Pakistan remains disconnected from the technologies shaping the next productivity frontier. Arkad’s wealth compounded because his investments grew faster than his subsistence needs. Pakistan’s economy, by contrast, is barely expanding beyond survival.
The external account reinforces this pattern. Pakistan’s current account slipped back into deficit in December as imports surged by 22 per cent, pushing the cumulative deficit to $1.17 billion in the first half of the fiscal year, compared with a surplus a year earlier. The balance has swung between deficits and surpluses month to month, reflecting persistent external fragility. Exports have declined for five consecutive months, while remittances continue to mask the underlying imbalance. A country that imports more than it exports, without channelling those imports into productive investment, is consuming future income today. Jinnah’s warning about living beyond means remains economically precise.
Pakistan’s treasury bill yields briefly entered the single-digit range before reversing course after the January monetary policy hold, with rates climbing back above 10 per cent. Lower yields reduce debt-servicing costs on floating-rate domestic debt and align with Fitch Ratings’ recent affirmation of Pakistan’s sovereign rating at B-, which explicitly hinges on keeping public debt and debt servicing on a firm downward path. Moody’s, while upgrading the sovereign rating, simultaneously revised the banking sector outlook from positive to stable, citing persistent external fragility. In narrow fiscal terms, the government’s balance sheet is finally getting some breathing room.
Cheaper debt, however, does not change the nature of the debt. Pakistan is not retiring principal; it is rolling it over. Each maturing bond is replaced with a new bond, and each interest payment is financed by a new issuance. Falling yields ease cash flow, but they do not shrink the stock of obligations that has climbed past Rs80 trillion. Fitch explicitly states that the rating hinges on debt and servicing costs remaining on a firm downward path. That path is fragile when the underlying model remains borrow-to-spend. The lesson implicit in Arkad’s teachings applies here: borrowing to sustain consumption only postpones reckoning. Pakistan is refinancing its liabilities while its productive base remains thin, mistaking liquidity relief for solvency.
Inflation further flatters the sovereign balance sheet while impoverishing the public. As prices rise, the real value of government debt falls, allowing the state to repay obligations in devalued rupees. For the treasury, this is arithmetic relief; for citizens, it is silent taxation. Savings erode, wages lag and purchasing power collapses, even as the state claims fiscal progress. A nation that finances itself by eroding its people’s savings is living beyond its means, only transferring the bill to those least able to bear it.
Pakistan’s fiscal debate remains trapped in the language of taxation, while its crisis is fundamentally one of expenditure and productivity, compounded by political economy. Even though tax rates have risen, much of the increase has come at the expense of documented sectors and debt has still risen faster than revenue. Furthermore, capital is leaving, growth is stuck near subsistence, and the external account oscillates between deficit and temporary relief from remittances.
Falling interest rates and stable credit ratings do provide some breathing room, but cannot alter the underlying structure of an economy that borrows to sustain consumption rather than to build productive capacity. Pakistan is spending income it has not yet earned.
Jinnah warned that living beyond one’s means costs sovereignty. Almost a century later, the warning now reads more like fiscal identity than mere rhetoric. Debt, even if acquired cheaply, remains debt. Stability without actual transformation simply reads as delay.
Arkad’s lesson was simple: wealth is built by discipline and investment that multiplies income. Pakistan’s challenge extends beyond borrowing cheaply; it must finally earn more than it spends.
The writer is an economist and educationist.
