Aqeel Karim Dhedhi – optimistic about the economy

In the midst of bleak economic forecasts and dismal outlooks espoused by several economists, Aqeel Karim Dhedhi stands apart in his optimism regarding the economy, “Tax revenue targets have not been achieved but non-tax revenue targets have been achieved through the petroleum levy which collected Rs115-120 billion. We have been able to equalize so haven’t been any negative effect,” explains Dhedhi.

“The trade deficit has not increased as was originally predicted. If you compare it to last year, it is less by about $7 billion. There has not been much burden on the current account because of the IMF package and a decrease in imports,” says Dhedhi.

He praises Pakistan’s finance secretary, Salman Siddique, “our finance secretary is a very capable man who has received a great deal of praise,” says Dhedhi.

Despite the current economic frailty, Dhedhi insists that this year is better than the previous, “Our tax revenue may have reduced but at the same time our trade deficit has shrunk, our fiscal and current account deficits have all reduced. As compared to last year, our import bill is down by $ 7 billion. Our exports have reduced by $1.5 billion but remittances have also increased by $1.5 billion.”

However, he believes that Pakistan’s economic managers placed an onerous burden on the public, particularly the business community through passing on subsidies with immediate effect, “If the subsidy had been passed on in a gradual manner especially if they knew the IMF package was imminent, this damage would not have happened then,” asserts Dhedhi.

He is also critical of Pakistan’s policy of monetary tightening which has caused much economic damage, “Because of the monetary tightening implemented in Pakistan, unemployment has increased considerably,” states Dhedhi. Rather than relying completely on monetary tightening, Dhedhi calls for expansionary fiscal policies. “When the government was commencing its policy of monetary tightening we advised them to focus on the fiscal side as monetary tightening would destroy industry. They could have formulated a blend of fiscal and tightening measures. If they had implemented this, industry would not have been so hard hit,” says Dhedhi.

He highlights the fact that the recessionary economies in the West have done the reverse as they understand the damaging effects of monetary tightening. “High prices had made it difficult, if prices rose any higher and if interest rates were further increased, the spending power of consumers would have been completely obliterated and industry would have come to a grinding halt. Instead they regained economic control by printing more dollars,” explains Dhedhi.

While the economic crisis in the West was brought about by toxic mortgage-backed securities, Dhedhi states that non-performing loans have only increased in Pakistan because of high interest rates. Increased interest rates coupled with subsidies being passed on to the consumer had a detrimental impact on the economy. “When crude prices fell, this was not passed on to consumer. This burden has not been placed on the public by any other country. Only Pakistan’s business community was made to suffer this,” asserts Dhehdi, stressing the need to forge a coherent economic policy.

Regarding the country’s ongoing energy crisis, Dhehdi proposes the elimination of the circular debt currently plaguing Pakistan’s energy sector by giving the Independent Power Producers finance to meet their working capital requirements.

In terms of the banking sector, Dhedhi feels that the concerns of the commercial banks have been addressed. However, there is still a liquidity shortage in the market and Dhedhi emphasizes that it is the State Bank’s responsibility to correct this on an urgent basis. “Leasing companies, modarabas, investment banks and asset management companies — a solution should be provided to resolve their liquidity problems. The problems of the commercial banks have been resolved but the rest of the financial sector still have problems which need to addressed.”

Recently Dhedhi’s recommendations were adhered to by the IMF. In particular, Dhedhi stressed the need to verify the accuracy of Pakistan’s inflation figures which according to him are completely distorted. “Pakistan’s inflation figures are artificial. On television people make a lot of noise and clamour regarding inflation, that inflation has increased. How has it increased? The government regulates the price of petrol, diesel, wheat and rice. Inflation figures are adduced where the market is deregulated — in free markets. There is no free market here,” explains Dhedhi. “When these prices are determined by market forces, the true inflation figures will be ascertained. The government must implement a policy of deregulation and only after this can the inflation figures be analysed,” he insists.