Regulating DeFi Risk

Vietnam and Pakistan are often viewed as very different economies, yet they share several important characteristics: large populations, substantial labor forces, strategic geographic locations, sizeable domestic markets and considerable potential in agriculture, manufacturing and services. The more important difference, however, is not simply what the two countries possess, but how effectively they have leveraged those assets into production, exports, investment, foreign exchange and sustained economic growth. The contrast is increasingly visible in the numbers. In 2025, Vietnam’s economy reached approximately $514.7 billion, compared with $407.3 billion for Pakistan, despite Pakistan having more than twice Vietnam’s population. GDP per capita was about $5,066 in Vietnam against $1,596 in Pakistan, while economic growth was 8.0 percent compared with 3.7 percent. Vietnam also attracted FDI equivalent to 4.2 percent of GDP, compared with only 0.5 percent in Pakistan. These figures do not mean that the two countries started from identical circumstances. They do, however, demonstrate the consequences of different approaches to leveraging economic potential.   Vietnam’s transformation began with the Doi Moi reforms in 1986, which gradually moved the economy towards market oriented production and greater integration with international markets. Over the following decades, Vietnam built a growth model around manufacturing, exports, foreign direct investment, infrastructure and participation in global value chains. Trade became one of their principal engine of growth. The scale of this transformation is striking. Vietnam’s merchandise exports reached about $475 billion in 2025, while imports were around $455 billion, producing a trade surplus of approximately $20 billion. Total merchandise trade was therefore close to $930 billion, almost twice the country’s GDP. Manufacturing accounted for nearly 89 percent of exports. This demonstrates the power of economic leverage: labour, infrastructure, foreign investment and imported technology have been combined to produce goods for global markets and generate foreign exchange. The access to US provides a particularly revealing comparison. Vietnam exported approximately $153 billion of goods to the U.S. market in 2025. China, meanwhile, remained its largest source of imports. This reflects Vietnam’s position within regional production networks, where it imports machinery, components and intermediate goods and transforms them into products for export. Vietnam’s experience shows that imports are not necessarily a weakness when they support productive investment and future export capacity. Pakistan’s trade structure remains considerably different. According to the State Bank of Pakistan, goods exports were $32.3 billion in FY2025, while goods imports reached $59.1 billion, resulting in a merchandise trade deficit of $26.8 billion. Services exports were $8.4 billion, including ICT exports of $3.8 billion. The difference becomes even more significant when viewed through the balance of payments. Pakistan recorded a current account surplus of $2.1 billion in FY2025, but workers’ remittances contributed $38.3 billion to the external account. The goods and services trade balance remained in deficit by approximately $29.4 billion. This highlights a fundamental difference between the two economies. Pakistan has been able to stabilize its external account partly through remittances, whereas Vietnam has built a much larger export generating productive base. Remittances are vital for Pakistan, but they cannot substitute for an economy capable of generating foreign exchange through competitive production and exports. The U.S. market further illustrates the gap. The United States is Pakistan’s largest export destination, yet Pakistan’s goods exports to the U.S. are only a small fraction of Vietnam’s. The opportunity therefore exists, but Pakistan has not yet developed the scale, diversification and industrial capacity required to capture a much larger share of the market. The lesson is not simply to increase exports to the United States, but to develop the productive ecosystem that makes sustained export growth possible. Vietnam’s experience also contains an important warning. Its impressive export performance has been driven heavily by foreign invested companies. This has helped Vietnam integrate into global value chains, but it has also created concerns about domestic value addition and linkages between multinational corporations and local firms. The lesson for Pakistan is clear: attracting FDI should not be the final objective. FDI should contribute to technology transfer, supplier development, skills, local procurement and domestic value addition. Pakistan therefore needs to rethink the relationship between imports, investment and exports. Restricting imports may temporarily reduce pressure on the balance of payments, but it does not create competitiveness. Machinery, technology, industrial equipment and productive intermediate goods can expand future production and exports. The objective should be to reduce consumption driven imports while facilitating investment driven imports that strengthen domestic productive capacity. Pakistan’s strategic location linking South Asia with China, Central Asia, Afghanistan, Iran and the Middle East offers major economic opportunities, but infrastructure alone cannot deliver transformation. CPEC, Gwadar, economic corridors, industrial zones and digital connectivity must be linked with productive clusters, reliable energy, logistics, skills and international markets. Pakistan should leverage its existing strengths by moving agriculture towards processing and higher value exports, textiles towards design and technical products, minerals towards processing and value addition, and IT, engineering, pharmaceuticals, tourism and business services towards stronger export performance. Pakistan also needs to make exports a central objective of economic policy. Balance of payments stability cannot depend indefinitely on remittances, external borrowing and periodic financial assistance. FDI policy should focus on quality rather than simply quantity, with incentives linked to technology transfer, local supplier development, skills, domestic value addition and exports. Special economic zones should be developed around clearly identified industries and markets, supported by reliable infrastructure and efficient regulation. CPEC, ports, industrial zones, roads and digital infrastructure should function as integrated production and trade systems rather than isolated projects. Public private partnerships can help mobilize investment where projects are economically and financially viable. The central lesson from Vietnam is that economic success depends on leveraging existing advantages through strong institutions, policy continuity and effective coordination. Pakistan has a large market, substantial workforce, strategic geography, natural resources and access to major markets. The priority should be to convert these assets into productivity, exports, investment and sustainable foreign exchange earnings. Pakistan must turn geography into connectivity, population into productive human capital, resources into value added exports, infrastructure into industrial capacity

In the space of a single year, Pakistan has moved from the periphery of Middle Eastern diplomacy to its center. Prime Minister Shehbaz Sharif and army chief Field Marshal Syed Asim Munir have positioned the country as both a mediator between Washington and Tehran and, more recently, a formal treaty partner of Saudi Arabia and Turkey. The result  the Makkah Joint Defence Agreement, signed on August 7 in Islam’s holiest city  marks one of the most consequential shifts in South Asian foreign policy in decades. Yet it also raises hard questions about who is really steering Pakistan’s course, and at what long-term cost.   A war that reshaped the region   The backdrop is a war between the United States and Iran that erupted on February 28, drawing in Saudi Arabia, the Gulf states, Iraqi militias and Yemen’s Houthi movement, and disrupting roughly a fifth of the world’s seaborne energy supplies through the Strait of Hormuz. Missile and drone exchanges reached Saudi cities, unsettling a region that had spent years trying to de-escalate after the 2015 nuclear deal’s collapse.   Pakistan, one of the few states with working channels to both Washington and Tehran, stepped into the gap. Sharif’s government hosted preliminary contacts that produced the so-called Islamabad Memorandum, under which Iran signalled it would not pursue nuclear weapons  a pledge it had already made under the Nuclear Non-Proliferation Treaty and the 2015 accord  in exchange for a mechanism allowing it to dilute stockpiles of highly enriched uranium. Iranian President Masoud Pezeshkian later thanked Islamabad for its “constructive engagement” in securing a ceasefire and agreed to send negotiators to further talks in the Pakistani capital. Analysts at the Washington-based Stimson Center have noted that Munir personally staked considerable political capital on the diplomacy, given how easily it could have collapsed.       The Makkah pact   That mediating role fed directly into last week’s agreement. Saudi Arabia, repeatedly struck during the war by Iranian missiles and by Tehran-aligned forces in Yemen and Iraq, had already signed a bilateral defence pact with Pakistan in September 2025  struck, notably, just over a week after an Israeli strike on Hamas negotiators in Doha rattled Gulf capitals’ confidence in American security guarantees. The Makkah agreement extends that arrangement into a trilateral pact with Turkey, declaring that an armed attack on any one of the three signatories will be treated as an attack on all.   Pakistani officials describe the pact as purely defensive. Foreign Minister Ishaq Dar said this week it was “not directed against any country” and remained open to other regional states. President Asif Ali Zardari called it a reflection of “shared resolve for peace and security,” while Sharif credited Munir’s “tireless efforts” in securing an arrangement he said had been years in the making. For Riyadh and Ankara, the pact offers a hedge against dependence on any single outside power at a moment when American commitments to the region look less certain than they once did. For Pakistan, it offers closer ties with two wealthy allies, a symbolic role as guardian of Islam’s holiest sites, and outsized influence for a country whose economy remains fragile.   Praise, and pointed scepticism   The agreement has been celebrated in much of Pakistan’s domestic media as evidence that the country’s leadership  civilian and military alike  is finally translating decades of geopolitical positioning into tangible strategic weight. Supporters point to a similar dynamic in May, when a brief but intense military confrontation with India ended within days, after which the government promoted Munir to the rare, largely ceremonial rank of Field Marshal, only the second officer in Pakistan’s history to hold it.   But that same promotion has drawn sharp criticism from analysts who see it as part of a broader consolidation of power by the military at the expense of elected institutions. Munir, appointed army chief in November 2022, has presided over a period in which  according to critics including jailed former prime minister Imran Khan’s supporters  courts, the media and Sharif’s own coalition have operated increasingly under military direction, a system some commentators have dubbed a “hybrid regime.” The Middle East Institute has described Munir’s elevation as “a thunderous declaration of the military’s unassailable supremacy,” while other analysts note that his growing role in foreign and economic policy  well beyond the traditional remit of an army chief  blurs the line between civilian governance and military command in a country with a long history of that line collapsing altogether.   What comes next   None of this diminishes the immediate diplomatic achievement: a ceasefire process that, however fragile, has held; a new pact that binds three influential Muslim-majority states more closely together; and a Pakistan that finds itself, for now, indispensable to great-power diplomacy in a region convulsed by war. Whether that translates into durable stability  for the Gulf, for the broader Middle East, or for Pakistan’s own democratic institutions  remains an open question. The coming months, as the Islamabad talks resume and the Makkah pact’s practical implications become clearer, will test whether this new era represents a genuine diplomatic breakthrough or a further tightening of military control dressed in the language of strategic necessity.

The preceding parts of this series began with a simple question: why do technically sound economic and tax reforms repeatedly fail in Pakistan? The answer cannot be found in tax rates, revenue targets or administrative capacity alone. Pakistan’s fiscal failures arise from the constitutional and political order within which taxation, expenditure, borrowing and distribution take place.  The country does not merely have an inefficient tax system. It has a fiscal state whose incentives favour immediate extraction, selective enforcement, negotiated privilege and recurring external dependence. The previous part IX applied this framework to contemporary proposals for closing Pakistan’s tax gap. Empirical estimates of untaxed capacity, sectoral inequality and revenue potential are valuable.  Data tell us where disparities exist and what additional resources might theoretically be mobilised. However, data do not explain why those disparities have survived repeated reform efforts, nor why the same burdens continue to fall upon documented businesses, salaried persons and ordinary consumers. That explanation lies beyond public finance. Constitutional Political Economy (CPE) begins from the recognition that the state is not an abstract guardian automatically pursuing collective welfare. It consists of institutions and individuals responding to incentives, protecting authority, bargaining over resources and operating within formal and informal rules.  Fiscal outcomes reflect the distribution of political power as much as principles of efficiency or equity. Pakistan’s tax crisis is the fiscal expression of that political order. Revenue without a fiscal compact A sustainable tax system rests upon a fiscal compact between citizen and state. Citizens contribute according to lawful and reasonably distributed burdens. The state, in return, provides security, justice, education, healthcare, infrastructure, economic opportunity and protection against vulnerability.  Pakistan has progressively weakened both sides of that compact. The state demands more from those already visible while tolerating privileges for those capable of political resistance.  Citizens encounter taxes in electricity bills, fuel prices, banking transactions, telecommunications, imports, contracts and ordinary consumption. Much of this extraction occurs without determining their actual income or ability to pay. Public services remain inadequate and uneven. Taxpayers are then told that services cannot improve because revenue is insufficient. The state responds to the resulting mistrust with more withholding, surveillance and coercion.  This creates a destructive cycle: weak services reduce consent; declining consent increases reliance on coercive collection; coercion deepens mistrust; mistrust encourages informality; and informality becomes the justification for still more transaction-based taxation. A fiscal compact cannot be created through fear. Restoring income taxation The first requirement is to restore the meaning of income tax. Income taxation should ordinarily measure net income after legitimate costs and losses and impose liability according to capacity to pay. Pakistan has instead constructed a vast structure of advance, minimum, final, presumptive and withholding taxes imposed upon transactions, turnover and gross receipts. This structure is administratively convenient. It allows the state to collect through banks, employers, utilities, import authorities and private businesses without developing the institutional capacity to determine real income. Its convenience is precisely the problem. Withholding should remain where deduction at source is logically connected with the recipient’s income and operates as an adjustable advance—principally salaries, dividends and profit on debt. It should not function as a substitute for return-based taxation, proper assessment and intelligent audit. Turnover cannot permanently replace income. A business earning a narrow margin cannot justly be taxed in the same manner as one earning extraordinary profits merely because both record similar receipts. Minimum and presumptive regimes penalise investment, distort business structures and convert losses into taxable events. The objective should not be abolition of withholding overnight. It should be a legislated transition towards a system in which withholding becomes limited, adjustable and subordinate to final determination of income. A genuine value added tax The second requirement is restoration of sales tax as a genuine value added tax. Pakistan has retained the vocabulary of VAT while repeatedly breaking its chain through exemptions, special schedules, blocked credits, fixed regimes, multiple rates and arbitrary restrictions. The result is cascading, litigation, refund accumulation and a bias against documented production. A genuine VAT should apply through a broad and coherent base, a substantially lower standard rate and unrestricted adjustment of legitimate input tax.  Exemptions should be confined to carefully identified necessities and public-interest activities. Refunds should be treated as taxpayers’ money, not as an unofficial source of financing for the state. The constitutional division between sales tax on goods and services need not condemn businesses to fragmented administration. Harmonised definitions, a common return, integrated registration, shared information and an agreed clearing mechanism can preserve provincial taxing authority while reducing compliance costs. Coordination is essential. Re-centralisation is not. Pakistan’s federation was not designed solely for administrative convenience. Article 160 of the Constitution protects the distribution of specified revenues between the Federation and provinces, while Article 140A requires devolution of political, administrative and financial responsibility to elected local governments.  Fiscal reform must strengthen all three levels of constitutional government rather than treating provinces and local bodies as spending agencies dependent upon federal discretion.  Ending taxation through labels A constitutional fiscal order must also respect the actual nature of each levy. Parliament cannot convert a provincial tax into a federal tax merely by attaching a different label. Nor can the executive create a new taxable event through rules, notifications or administrative directions where the legislature has not imposed one. Article 77 requires federal taxation to rest upon parliamentary authority. Articles 4, 24 and 25 bring legality, protection against arbitrary deprivation and equality into the same constitutional inquiry. Legislative enactment is indispensable, but enactment alone does not validate a levy that exceeds legislative competence, discriminates irrationally or denies due process.  The annual Finance Act should not be used as a container for major structural changes receiving limited parliamentary examination. Essential elements of a tax—the subject, person liable, measure, rate and taxable event—must be stated clearly in primary legislation. Delegated legislation may implement the law. It cannot become an alternative legislature. Expenditure is the other side of taxation The debate over Pakistan’s tax-to-GDP ratio often proceeds as though every additional rupee

By Saqlain Abid Tarrar The 60-day U.S.-Iran understanding expired on August 17 without the breakthrough Washington and Tehran had hoped—or claimed—to seek. The agreement has effectively stalled, the Strait of Hormuz remains at the centre of the confrontation, and both sides continue to blame the other for the diplomatic failure. Iran has now warned that it could shift towards a more offensive posture if diplomacy does not progress. This leaves a disturbing question on the table: is the nuclear option becoming the next neutralisation node in the Iran war? The question gained momentum after former Congresswoman Marjorie Taylor Greene claimed that the use of nuclear weapons had been discussed in Trump administration strategy meetings. Such a claim should be treated cautiously because there is no independent evidence that President Donald Trump has ordered or formally approved a nuclear strike. Nevertheless, the allegation itself demonstrates how far the strategic debate has moved. The White House has maintained that nuclear use is not a proposal on the table. Yet Trump’s own rhetoric has made the situation increasingly difficult to ignore. He has declared that the United States has “total control” of Hormuz and described the idea of making the strategically vital waterway U.S. territory as attractive. The Strait of Hormuz is not merely another battlefield. Around one-fifth of the world’s oil and gas supplies normally pass through this narrow maritime chokepoint. Any prolonged closure therefore creates consequences far beyond Iran and the United States: higher energy prices, disrupted shipping, inflationary pressure and another shock to an already fragile global economy. So, what are the chances of the United States actually using nuclear weapons? At present, they remain extremely low—but low is not the same as impossible. History demonstrates how quickly supposedly unthinkable options can become military realities. The United States became the first country to use nuclear weapons in warfare when it dropped atomic bombs on Hiroshima and Nagasaki in August 1945. However, it would be historically inaccurate to argue that those attacks were simply conducted to test plutonium and uranium against the Soviet Union. The motives remain debated, including compelling Japanese surrender and influencing the emerging post-war balance with Moscow. The lesson, nevertheless, is unmistakable: once a state believes that an extraordinary weapon can achieve an extraordinary political objective, the threshold can become dangerously negotiable. That is why today’s situation deserves scrutiny. The Trump administration needs an exit from a war that has become increasingly difficult to convert into a decisive political settlement. The USS Abraham Lincoln has also endured an exceptionally long deployment, reportedly more than 240 days at sea, adding another layer of military and political pressure. But nuclear weapons would not provide a rational solution to that problem. Iran’s nuclear capability is certainly a serious concern. The IAEA reported that Iran had accumulated about 440.9 kilograms of uranium enriched to 60 percent before the 2025 attacks disrupted international verification. That material could theoretically produce significant quantities of weapons-grade material if further enriched, but possession of 60-percent enriched uranium does not mean Iran already possesses nuclear weapons. Iran, meanwhile, has suffered severe economic and infrastructural damage, yet its resistance has not disappeared. Tehran continues to signal that it will not simply surrender under pressure. The danger is therefore that military escalation creates the very nuclear insecurity Washington says it wants to prevent. Russia and China could condemn any nuclear use and mobilise diplomatic opposition. The United Nations could debate emergency resolutions. European governments could strongly object. But none of these actors could physically intercept an American warhead once Washington had made the decision. That makes the most important restraint internal: the political and strategic judgment of the American leadership itself. And there is an even larger regional consequence. If Iran were struck with nuclear weapons, Gulf states could reach a frightening conclusion: conventional alliances may no longer provide sufficient security. Saudi Arabia, the UAE, Türkiye and others could reconsider their long-term strategic options. Nuclear hedging and proliferation could become increasingly attractive. That would transform the Middle East permanently. The irony would be profound. An American nuclear strike intended to prevent Iran from becoming a nuclear power could encourage an entire region to seek nuclear deterrence. Hormuz may eventually be reopened through negotiations, military pressure or a new regional security arrangement. But once the nuclear taboo is broken, restoring it would be far more difficult. The nuclear option should therefore remain the last option—not because it is weak, but because its consequences are stronger than any victory it could deliver. Power can neutralise an opponent. But when power is unleashed without restraint, it can ultimately neutralise the international order itself.

By Aleena Saif Ullah The writer is an MPhil Scholar in International Relations, specializing in global defence and security, University of the Punjab, Lahore. On February 28, the first day of Operation Epic Fury, a strike hit the Shajareh Tayyebeh girls’ elementary school in Minab, in Iran’s Hormozgan province. Iranian state media reported that 168 children and 14 adults were killed. Anadolu reported two strikes roughly forty minutes apart. President Trump said on March 7 that in his opinion Iran had done it, citing Iranian inaccuracy with munitions. Bellingcat had already established otherwise. Its researchers identified a Tomahawk cruise missile — a munition no other belligerent in the conflict fields — in footage released by Iran’s Mehr agency, and geolocated the strike sequence. The New York Times, the Associated Press and CNN reached compatible conclusions through independent satellite and video analysis. By March 11, NPR reported that a preliminary Pentagon assessment had determined the United States was at fault. Five months later, the accountability failure is not the one I described when I first wrote about this case, and the actual failure is more instructive. A process was initiated. On March 13, Secretary Hegseth announced a formal command investigation, with CENTCOM appointing a senior officer from outside the command to lead it — the correct procedural choice. Lawmakers have said that officer submitted an initial report in April. CENTCOM has held it since. On May 19, Admiral Brad Cooper told lawmakers under oath that the investigation was complex, near completion, and that “I’m fully committed to transparency” once it concluded. No findings have been published. Then in July, CNN reported the detail that reframes the case. Within a week of the strike, the first two stages of the battle damage assessment were complete, establishing that American forces had hit the location. The third stage — the standard review in which Defense Intelligence Agency analysts examine the full body of satellite imagery and intelligence to determine holistically what occurred — had not been ordered as of early July. One source familiar with the matter told CNN there had been no detailed analysis and that CENTCOM had locked down the investigation. NBC reported that preliminary findings pointed to outdated intelligence as the likely cause. This is a different kind of institutional failure from the one international lawyers usually describe, and it is worse. An absent process can be demanded. A process that ran, produced a document, and stopped is much harder to move, because officials can accurately say an investigation took place. The context makes it harder still. On May 13 the Pentagon’s own Inspector General found that the Department had systematically failed to implement its Civilian Harm Mitigation and Response Action Plan, with all eleven objectives reclassified as at risk and the legally mandated Civilian Protection Center of Excellence lacking key staff and leadership. The architecture built specifically to prevent and account for incidents like Minab had been allowed to decay before the war that tested it. Congress has asked the right questions and been ignored. A letter led by Senator Chris Van Hollen and signed by more than forty senators asked Secretary Hegseth directly whether American forces conducted the strikes, what the intended target was, whether AI tools were used in targeting, and whether a no-strike list was established before operations began. Answers were requested by March 18. More than 150 House members signed a parallel letter on the broader civilian toll. The comparison the Pentagon itself invites is unflattering. As NBC noted, the Department has publicly disclosed its role in comparable incidents before: a special forces raid in Yemen, a bombing in Iraq that killed more than a hundred civilians, the strike on an Afghan hospital that killed at least forty-two, a drone attack in Afghanistan that killed ten. Disclosure in those cases was not generous, but it happened. What Minab demonstrates is that the binding constraint on accountability is not evidence. Volunteer open-source investigators, working entirely from public material, established the essential facts within nine days. The state that conducted the strike established them internally within seven. The constraint is that no mechanism exists to compel publication of a report a government has decided not to publish — not the Rome Statute, to which the United States is not a party; not the Security Council, where it holds a veto; and not the Inspector General, who can find institutional failure but cannot release another command’s findings. One lever remains, and it is domestic rather than international. Congress can require declassified release of the findings through the National Defense Authorization Act. Whether it does will indicate more about the state of accountability for civilian harm than any further open-source analysis. The evidence is not missing. The report is not missing. Both exist. Neither can be read.