GVS: What are your thoughts on the overall government performance in the past three years.
Aqeel Karim Dhedhi: The government has done a good job both on the economy and on the international front. I hope you will agree that the government has represented Pakistan well on different platforms, like in the UN on Islamaphobia, the Kashmir issue, and the recent Afghanistan issue.
GVS: When you say that the government has done well on the economic front, let us examine one of the key items they have been highlighting, removing the Current Account Deficit (CAD). Yes, it had declined, and we even saw positive growth in a couple of months, but do you see that government policy or external factors such as the Corona pandemic or lower energy prices reduced our import bill?
Aqeel Karim Dhedhi: To look at the current account, we will have to go back to June 2018, and in fact, go further back to June 2013 and June 2008. Starting in 2008 our exports increased continuously till 2013, reaching $25 billion.
Over the next four fiscal years, FY14-FY17, exports declined; in FY18, the exports increased back to around $24bn, close to what they had been in 2013. Then during FY19-FY21, they started rising again.
During this whole period imports shot up and why? Because the government fixed the Pakistani Rupee at a value higher than the real market-determined value, they did not allow the currency to devalue.
When this devaluation was artificially prevented, the currency’s real exchange rate reached 124, which in essence meant that imports were being subsidized while the government was hurting exports.
In 2018, we faced another problem: the CAD reached close to $20 billion, while the trade deficit extended over $30 billion. The country could not function for a month in such a situation.
The PTI government came to power in August 2018; it faced several serious issues on the economic front, especially debt repayment and the current account deficit. In 2018, there was a lot of debt repayment burden on the government, $10 billion in 2018, and similarly, $10 billion was to be paid in 2019, and $5 billion in the following year.
To get out of this, the best thing the incumbent government under Prime Minister Imran Khan did was to implement a contractionary monetary policy, which they did despite their campaign promises.
They could also have, like earlier governments, thought that let us fix the Rupee so that we do not get a negative political fallout effect. But they did not. They decided to take the tough measures to fix the economy, gave the patient the medicine he needed even if he did not want it.
So the economy slowed down even further, inflation increased, interest rates were increased, and had other negative consequences, but this was done as a solution to the problems the economy faced, and yes, the government was criticized for these decisions.
However, while all these short-term decisions were being made, the government simultaneously worked towards making longer-term policies. The policymakers changed their revenue target from being based on imports, using custom duties and import levies, to generating revenues from local industries.
Imran Khan’s government started imposing dumping duties to support the local industry, and regulatory duties made imports expensive and supported local industries. The PML-N government had done nothing to promote the local industry.
They were indifferent towards everything; they did not care if steel or cement or luxuries were imported, they left exports un-incentivized, and the local industry was left on its own and not helped.
GVS: Was this an actual thought-out government policy- to pivot away from import-based revenue to generating revenue from local industries?
Aqeel Karim Dhedhi: Of course! The duties were placed to reduce imports, and when that is done, obviously, the government and the country benefit. The government protected the local industry with these duties, as the demand for the local products increased and the sales went up for the local manufacturers.
Major sectors like the cement industry went from being close to bankruptcy and almost shutting down to expansion as these policies were implemented. The incumbent government announced housing policies, which created a demand for the cement sector, among other things.
Before this, housing projects like DHA were in deep crisis. The real estate businesses were finding it difficult to survive and had begun defaulting. Even the banks were going towards defaults as they could not sell their properties.
GVS: For the last few weeks, there has been the argument that the economic growth and imported fuel is the major cause of inflation in the economy and dollar appreciation against the Pakistani Rupee. However, the same argument was being floated during the previous regime, and now it seems the incumbent government is following a similar import-driven model.
Aqeel Karim Dhedhi: Reality is far from this. When you talk about the PML-N regime, the government had kept the Rupee overvalued; however, the PTI regime has kept the Rupee undervalued.
It means that when you compare the country’s inflows and outflows (exports, imports, remittances, etc.) that determine the exchange rate, even today, the real exchange rate at 96 is undervalued, not overvalued. When the PKR-USD is not overvalued, the government is not following an import-driven revenue model.
GVS: Now that the three years of Imran Khan’s government are completed, what do you see as his biggest economic achievements?
Aqeel Karim Dhedhi: The entire industry has been revived, the housing sector has been revived, the textile sector has been revived, and the trade deficit is out of danger compared to before the incumbent government’s arrival.
Similarly, remittances have increased exponentially, and business confidence in the industry has gone up, and they have gone for historic levels of expansion. The buying power of the people has increased, and along with the new housing policy, it will allow the economy to expand every year. The buying power of people has gone up over the years and will continue to do so.
GVS: How do you say that the economic situation has improved? For the common man, the poor living in the urban centers, we have seen massive price rises in necessities such as electricity price increases and even food becoming expensive for people who work on minimum wages.
Aqeel Karim Dhedhi: Please tell me if the electricity prices have increased for the lowest user? No, for people utilizing under 250-300 units, which is the vast majority of the lowest class’s usage, the prices are very low and have not increased.
As you know that general electric prices are related to past government decisions to set up power plants at expensive rates and having to make capacity payments.
GVS: OK! You can blame electricity prices on previous government’s mistakes, but what about the price of foodstuff, prices of onion, which is at Rs. 70/kg, pulses above Rs. 250kg, etc., are too expensive?
Aqeel Karim Dhedhi: These are not correct indicative prices; onions are at Rs30/kg, potatoes are at Rs.20/kg, the overall average price of every vegetable is Rs.35/kg, and live chicken is Rs.120 kg. In the agricultural sector, 32 million tons of wheat have been grown, and prices of all the agricultural commodities have increased, resulting in higher wages for the farmers and generally in the rural areas.
Who do you think is buying all the cars and trucks we are selling in the country! Even in the cities generally, salary increases have occurred amongst the IT sector, banking sector, and many other sectors, journalists who keep talking of these issues, are amongst the few industries that have lost out during this period.
Profits have increased in banks, the cement sector, chemical sector, textile sector, etc. How do you define the common man? I have kept 14 SSG security guards. Previously, I used to give them Rs.35,000; now, I am giving them Rs.70,000 along with food two years later. Ninety percent of the sectors have seen income growth.
GVS: So, all this is happening due to government policies?
Aqeel Karim Dhedhi: The government deserves credit as it has allowed the free market to work without much intervention, the subsidies have been given to the poor, and the price of fertilizer has decreased in Pakistan despite the global price hike.
During the PML-N government, Urea was Rs. 2,100, and now it is Rs.1,700, four hundred rupees cheaper. There are subsidies on DAP prices; the incumbent government has started Agri-loans. Banks have started taking an interest in mortgages for the first time as the government is penalizing them if they do not follow through on it.
GVS: The government has spent billions on the Ehsaas program; they have decided that the government will support anyone who falls below the poverty line, but there is no increase in help with those in businesses and incomes. Eighty million people are below the poverty line today – can government sustain these people by creating a culture of living off the government?
Aqeel Karim Dhedhi: Ehsaas Program is for the poor, and we should not deny this help to them. The government has decided to support 15 million families, and each family has a mean number of six members, meaning 90 million people will benefit from it. Rs250-300 billion has been disbursed.
Still, the government is achieving its revenue targets. For July 2020, 40 percent more revenue has been collected despite being a month with many holidays like Eid. Revenue increased from imports to some extent, but mostly, the local industry was doing well.
GVS: Going forward, do you see the industry continuing to make profits?
Aqeel Karim Dhedhi: I think the industry will grow every month and break previous months’ records each time. Every industry will increase its sales monthly. They are right now unable to fulfill existing demand.
Goher Ejaz, Chairman APTMA, has explained again and again that the textile sector is doing very well, but people are not paying attention. He has said we exported textile goods worth $1.5 billion in July alone.
The capacity was created due to Imran Khan’s government policy. The government gave a TERF facility of Rs. 500 billion, rescheduled Rs. 600 billion GIDC for five years gave a package of Rs.1.3 trillion due to Covid; other than that, they gave a loan of PKR 1 million for every hospital being built. They have given policy after policy. They reduced 10 percent sales tax on Urea. All of these things are fantastic.
GVS: Going forward, it seems our CAD is going to increase. Will this create problems for the economy?
Aqeel Karim Dhedhi: I do not think so. Our import figure is not that big. Even if the import bill increases to $70 billion, it currently is between $55 and $60 billion. Our remittances for next year will be around $30 billion and exports around $40 billion (which are entirely possible – textiles are already at a run rate of $1.5bn per month). I do not see the current account as an issue!
GVS: So the difference from the Nawaz government is that their CAD built up to $20 billion?
Aqeel Karim Dhedhi: They took it $20 – $21 billion, their trade deficit almost reached $35 billion, how could there be any recovery. They had declining exports for four years, which finally increased in the fifth year, 2018, to get back to where they started from in 2013.
They overvalued the Rupee, which means you end up increasing imports because you are essentially subsidizing them. Dar played it smart; if he did not do it at that time, their government would have ended.
They stopped inflation by not letting the Rupee weaken, which would have led to inflation, leading to an increase in the interest rate and increased expenses. They did it artificially.
GVS: They were not fools. Why weren’t they able to work on exports? They were an old business family.
Aqeel Karim Dhedhi: They lacked trust in the exporters over whether they could increase their exports. It is true that at the time, it did not seem like we had the capacity. This time we can see it because America banned China, they will not import any cotton products from China. The beneficiaries of that are Pakistan, India, and Bangladesh.
GVS: When the government says we want to make it an export-oriented economy, what areas should they focus on?
Aqeel Karim Dhedhi: There is potential in livestock in dairy exports such as China. If we make an agreement on food with China, even chicken is in demand there. A huge plant has been set up in Lahore, daily producing about 40,000 kg, which will be exported.
Let me tell you just about dairy; in Pakistan, 26 billion liters of milk are wasted yearly due to no storage facilities. Companies such as Nestle and Olpers should be contacted by the government and asked to build such cold storage facilities with subsidies. Twenty-six billion liters of milk mean Rs. 260 billion will be saved.
Converting that to dollars will be approximately $1.5 billion. Last year we had the highest IT exports, and in IT export you make $10-12 million weekly. We should focus on IT services, but for that, we will have to work on the basics such as education of children in English, Maths and IT Programming.
GVS: What is the future of our relation with IMF?
Aqeel Karim Dhedhi: It will be a good relation. The reason for that is they are interested in our revenue targets. The revenue target that we expect will be exceeded, and IMF is already in disbelief at our previous GDP numbers, which show we have done so well. They will have to believe that our July figures are good, August will be even better, and September will be even better.
GVS: Do you think we will be able to complete the IMF program?
Aqeel Karim Dhedhi: Very easily, there will be no problem. After receiving this package, we will have to part ways with the IMF because we will not need them. We will get this package due; it will be resumed. What can they say?
They say to achieve your revenue target; it is done, they ask to keep your Rupee strong, all right, that is good. They say your interest rate should be linked with inflation, all right, done. They say that the central bank should be independent, without government interference that has been done. The government is meeting all their demands.
They want to end subsidies, so subsidies are ending; they are very little right now. They demand to increase the price of power, and the government has not reduced them. You have to think about our problem; if we at this time sell more of our electricity, then we have no problem.
Tabish Gauhar has said that we sold record electricity this last year since demand is increasing in the industry. This means the government’s capacity payment will be reduced, and that is good news.
GVS: Do you think interest rates will increase?
Aqeel Karim Dhedhi: I do not think so. The state bank governor has said so that we currently have no intention to do so.
GVS: Can you tell us what have been the biggest failures of the Imran Khan government so far?
Aqeel Karim Dhedhi: Their focus was on reforms, police reforms that could not be done. What they could do in the North they could not repeat in the rest of the country. They cannot be blamed in Sindh since they did not have a government there.
In Balochistan, there is a coalition government, so it cannot be done there. Left is Punjab, and the expectations there regarding police reforms were not met. However, they have been successful in other areas.
Reviving the entire country’s economy is no small feat. If it had been done in any other country, people would have saluted the government every morning. However, I agree that our fiscal deficit has not decreased, and it is time to focus on it.
GVS: How can the government improve fiscal deficit? Its major components are interest payments, principal payments, defense expenditure, and the increasing pension expenditure?
Aqeel Karim Dhedhi: We are not talking about loan repayment; the debt servicing that we are doing will increase every year. Other than that, our loans are not increasing. We should stop subsidies to all sectors.
Especially, state-owned enterprises, exporters, the Power sector, all areas we need to stop subsidies. Let me explain that if I give you a sheet tomorrow that shows the profitability of every company.
Their profitability has increased so much that they do not have enough space to allocate money to balance. NFC reform will have to be taken back provinces take 56 percent, yet the entire defense load is on center. It is not sustainable.
GVS: Should NFC be renegotiated or the 18th Amendment?
Aqeel Karim Dhedhi: We will have to do all of it; as long as the 18th Amendment is not renegotiated, we cannot do anything else.
GVS: Our remittances are very high, currently around $30 billion. Do you see more potential in this?
Aqeel Karim Dhedhi: This is nothing. We have greater potential; right now, we have $2 billion in Roshan Digital Accounts; it will be $4 billion in December. Once they come, then this money will not go anywhere and will increase yearly. We are currently giving 7 percent right now on the dollar.
Even if we make it 6 percent or 5 percent, money will still come. Money will also come in the equity market as well as housing, such as NAYA Housing Pakistan. The money will keep doubling every year.
As soon as deposits come into the system, reserves will build along with confidence level, which will increase FDI. People will lose fear seeing Pakistan’s strong reserves and investments. The day our reserve is $30 billion, you will massively increase FDI into the equity market.
GVS: You are part of the security market; why is Pakistan’s stock market so small?
Aqeel Karim Dhedhi: We do not have good valuation rates; if you want to reduce risk, you need to have a good valuation. The market is trending at 4-5 PEs, so what kind of valuation you can get on this. However, there will be a time when it will sell around 12-13 PEs in the market.
GVS: Can you please explain that?
Aqeel Karim Dhedhi: Let us take a company with a book value of Rs 10 and its yearly earning is Rs 3, and its market price is Rs 5 then they will have to be crazy to sell their shares. Let us take your magazine; if its valuation is ten crore rupees, it makes two crores yearly, you decide to invest in stocks. If someone wants to buy your share at Rs 6, will you sell? Of course not.
So this is happening in Pakistan because the investor base is small. There are not many investors, and our regulator is useless. The solution is to kick out anyone who does wrong, even a sponsor. SECP is a very weak regulator. However, Shaukat Tarin is working on pension funds, assets management companies, and REITs investment to increase the size and depth of the market.
GVS: Coming to your personal life – you do not have a finance degree, then how did you come into the stock exchange?
Aqeel Karim Dhedhi: I have been in this business from the age of 13 with my father, who was a stock member in Bombay before 1947, and then in Pakistan. Since 1943 we have been Preference shareholders of the Kathiawar industry. We did business in Junagadh, with the estate of Nawab of Junagadh. My father bought land in Karachi in 1946, and we came to Pakistan before 1947.
GVS: Because he saw a future in Pakistan?
Aqeel Karim Dhedhi: Yes, my father did; he had an interest in politics.
GVS: You have four daughters; what is your opinion on the preference for sons in Pakistan?
Aqeel Karim Dhedhi: All my daughters are working, and I feel the quality of work that women give, men do not.
GVS: What advice would you have for those parents with daughters?
Aqeel Karim Dhedhi: Our religion tells us to educate our daughters as much as we can. I have very high expectations of my daughters to achieve as much as they can in the workplace while also giving their best to their families.