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Mr. Muhammad Hammad Azhar on Zameen Interviews

Zameen Interviews – Is Pakistan’s Economy Heading in the Right Direction? A Chat with Mr. Muhammad Hammad Azhar

Real Estate Trends
20 min read | SI  | January 23, 2020

Prime Minister Imran Khan appointed Mr. Muhammad Hammad Azhar as the Federal Minister for Economic Affairs on 9th July 2019. Considering his pivotal role in delivering the Federal Budget 2019-20, several users of Zameen.com wanted to hear his views on the state of Pakistan’s economy. So, we invited Mr. Muhammad Hammad Azhar on Zameen Interviews, a platform where we interview key figures in both politics and real estate. Below, we’ll share Mr. Azhar’s views as well as some key takeaways from the interview for your ease, but first, let’s learn a little bit more about the man and see the future of Pakistan from his eyes. 

About Mr. Muhammad Hammad Azhar

Mr. Muhammad Hammad Azhar has been a Member of the National Assembly (MNA) since 2018, and previously held the portfolio of Minister of State for Revenue. Mr. Azhar was tasked with announcing the Federal Budget 2019-20, which he did on the floor of the Parliament—a venue he often takes to voice his opinion on the unfolding socio-economic conditions of the country. He is widely known and respected in both media and public circles for his rationale-centric style of politics.

Views of Mr. Muhammad Hammad Azhar on Zameen Interviews

Beginning our interview with Mr. Azhar, we were eager to know just how he entered the world of politics. He was more than happy to relate his tale, beginning with his father’s experience in politics and sharing his views about it:

“My father was very active in politics but after developing some differences with the ruling party, the issues eventually led to his resignation from his parliamentary seat. Afterwards, my father became the President of that very party, after fighting the party’s election. But, I never intended to join politics. I believed that the customary style of conducting politics, which is carried out here, does not contribute to the progress of the country, nor can anyone contribute to the country with it.”

He then told us about how he became interested in developing a political career:

“But then in 2011, I started engaging in personal meetings with Imran Khan. I noticed that he does not have a conventional political code of conduct. Rather, he is someone who wanted to actually introduce a new political culture on the basis of issues and ideology, not on the basis of personal interests.”

Mr. Azhar mentioned how Imran Khan convinced him to join the political scene and how he was one of the first few members of the PTI when it had just started to gather followers:

“So, he (Imran Khan) convinced me to join politics. I began my political career with him and then I joined his party. PTI had not even orchestrated any political gathering in Lahore at that time. The PTI had not yet evolved into the big force that it is today. We had gotten no breakthroughs via our political gatherings, but I still joined the party. And after that, I was part of Khan Sahab’s struggle throughout. I was a part of it all as a worker for the party.”

He also talked about his initial failure in politics, before humbly mentioning his success:

“I ran for election in 2013 first, but remained unsuccessful, in spite of scoring a good number of votes, around 70,000. The second time I contested for the election from the same seat was in 2018 with more preparation. I managed to win. Thereafter, Khan Sahab put his trust in me.”

We then put forward some questions during our interview with Mr. Azhar, and here’s what he had to say:

Have you ever faced any kind of discouragement from your father during this political decision?

“No, not at all. He encouraged me. My father admires Khan Sahab a lot. Also, he himself has been the victim of our conventional political conspiracies and intrigue. Hence, he always perceived Khan Sahab as an honest and sincere person, and he has always encouraged me.”

His response was a clear indication of the support he has received from his father after choosing politics as his career.

You held different portfolios as a minister. Do you believe that this reflects a poor decision-making quality of your (PTI’s) leadership?

Considering that Mr. Azhar has taken on several roles for PTI, the question was fairly valid and here is his response, where he clarified how the entire party works as a team, filling in gaps and performing roles wherever needed:

“Actually, people do not understand how the economic team of Khan Sahab operates. We do not function on the basis of our portfolios. We are all collectively responsible for our team’s success—and so, we divide our work to support each other. Now, whether I’ve been associated with Revenue, Economic Affairs, or Finance in the past and if my portfolios would have been something else, I would still have been doing only slightly different work.”

He explained how the party members are individually tasked with particular responsibilities but are also collectively responsible for the results of the team as well:

“On one hand, you have your core functions and then as a team effort, you are collectively charged with overlooking finance and the economy, because the sort of challenges we have faced, it could not be tackled as a one-man job. At times, it happens that I am charged with overlooking work in the industrial sector or sometimes even revenue or finance-related work. Similarly, sometimes, I have to take help from other ministers for my own core ministry’s functions and this is what is called teamwork and this is what we call collective cabinet responsibility.”

He moved on to the next question with a quote that stays with us:

“So, I believe that a person should be efficient in his work, portfolios don’t matter.”

What was the economic situation of Pakistan when PTI came into power, and what is the situation now?

Since he is the current Federal Minister for Economic Affairs, Mr. Azhar is well versed with where the country’s economy stands today. Hearing our question, he gave us an overview of the situation that Pakistan’s economy had been in when PTI came into power:

“In the times and the situation that we took the responsibility of the economy, the conditions were so bad that we were unable to detail the situation on TV, to avoid panic in the markets. Your foreign exchange reserves were reduced to half in seventeen months. They were nearly depleted. The current account deficit had increased from 2.5 billion dollars to 20 billion dollars. And the loans and interest instalments that had to be returned to the lending countries were the highest in Pakistan’s history, having increased to more than 10.5 billion dollars. It fell to us to manage this crisis responsibly. But, we put up a brave face.”

To clarify, foreign exchange reserves refer to the foreign currencies held by a country’s central bank, which is the State Bank of Pakistan, in our case. Meanwhile, the current account goes into a deficit when a country spends more on its imports than it makes from its exports, resulting in a higher expenditure over earnings. 

Continuing his explanation further, Mr. Azhar told us about the immediate efforts made by the PTI government to save the country from bankruptcy:

“Khan Sahab went abroad, our allied countries helped us, we made an agreement with the International Monetary Fund (IMF), we achieved stabilisation. Many painful adjustments had to be made; some of which entailed taking unpopular decisions, which tended to bring hardships. But, in order to save the country from default and bankruptcy, we had to agree to them.”

He then continued on a positive note, explaining how all those hardships and tough decisions have reaped their rewards:

“Today, we have gotten the results that our economy has become stable, our current account deficit has decreased by 32%,  our foreign exchange reserves which were drastically declining in the previous government’s tenure are increasing in our time. Stabilisation has been achieved, but only after making several hard decisions. What we need to understand is that the current, difficult situation is only temporary and that we are moving towards betterment.”

Current economic policies have caused mistrust amongst the business community. What do you have to say in this regard?

“Look, when you have to make a lot of adjustments… For example, if the currency had not been devalued and the exchange rate had been maintained artificially by The State Bank, you would naturally have been deficient in dollar reserves and would have incurred a default. So, it had to be done. If the interest rates had not been increased, the inflation which currently stands at 11% (due to which we understand that the public is facing a lot of difficulties) would have risen to 50%. Hence, we had to increase interest rates.”

Sketching the scenario above, Mr. Azhar explains how we often have to choose the lesser of two evils in a crisis:

“When you are in a crisis, policy options are very limited and we had to make a lot of adjustments. Energy prices needed adjustments because your gas department and electricity department were bankrupt. Banks were not willing to open LCs or Lines of Credit for the electricity department. Similarly, our State Bank reserves were depleted. They were negative. All of these adjustments had to be made in a very short period of time because the damage was extensive. This led to circumstances which temporarily created a very uncertain situation. But then, you eventually do pass through it.”

He was full of hope about the current and future condition of the economy as he wrapped up his answer to this question:

“Now, you see that your currency is stable. Your interest rates are stable, and that business sentiment is improving in the economy. And, you will see that gradually, the economy will pick up pace and activity will increase because we are coming out of the difficult stabilisation phase very rapidly. So, you will observe that sentiment will improve further.”

What measures are you taking to ensure the progress of the real estate sector?

Mr. Azhar uses a technical standpoint to help us understand the situation:

“Look, if I may be a bit technical, we first need to fix the pricing signals in our economy. You will continue to create consumer bubbles and consumption bubbles as long as the pricing of every commodity is artificial and not market-based. Similar to the imports bubble that had been created in the past. A similar bubble was also created in the real estate market. Prices were skyrocketing. And due to some of our weak policies, the people who invested in land had to see their white money turn black—even when their intentions were honest.”

He then shared the first of many efforts made by the government to facilitate the real estate sector:

“This situation is not sustainable for any government. This sector had to be documented one day. So, what did we do for that? Number one is that we tried to relax the real estate sector. If you recall, the previous government (on its way out), passed a rule that you could not purchase a property if you were a non-filer. Well, we scrapped it because we believe that the weaknesses of the Federal Board of Revenue (FBR) should not be reflected on the real estate sector. But, we believe that this sector elicits huge income shares, with millions and billions of rupees parked here—all of this must be documented.”

Then he shares his future steps for boosting investment in real estate:

 “For its documentation, we started increasing FBR and DC rates all over Pakistan. Now that they have increased and are equivalent to 80-90% of the corresponding market rates, we aim to gradually start decreasing real estate taxes in the provinces—in three provinces where we have our government, we will begin to decrease it. And we are also reviewing the Gains Tax that we have applied.”

He assured us that no specific sector was being targeted and they simply want to document where the money is going to avoid consumer bubbles that suck money from the economy as a whole:

“But people should realise that we are not doing this to ‘squeeze’ a particular sector. We simply want documentation in the sector. We want to have accurate pricing signals and that decisions should be made on the basis of accurate demand and supply. Black money should not be parked over there. It should all be documented and money should be reallocated towards industrialisation as well. Because when bubbles form—especially consumption bubbles in any specific economic sector—then artificially high returns are produced and the sector sucks all the money from your economy. And you don’t get any output from that sector.”

Talking about the past few years, he mentioned how we were regressing rather than progressing, which is what their government has tried to curb:

“Also, we witnessed a reversal of industrialisation in our country over the past ten years. We are a growing country. We are an emerging economy. We cannot afford to be deindustrialised. The rest of the world is industrialising. How can we afford to deindustrialise? The biggest reason for this occurrence was that our money was being sucked into specific consumption bubbles—which were found all around, including in the real estate sector—and it was being parked there. When you provide a level playing field to every sector, balanced growth is observed and then the wheel of the economy will move in the right direction, not only for one sector but for all the sectors in a balanced way.”

Do you agree that the instability seen in the economy is because of the tough conditions set by the IMF?

Mr. Azhar answered the question frankly in the following words:

“Look, what does the IMF say? IMF says that you must control your losses. You should reduce your losses and you should stay within your income limits. Let’s take an example: I get my hands on my father’s credit card and start spending it over a year’s time frame. The people around me will begin to notice that my clothes have improved and that the food I eat is of superior quality. But, a day will come when the credit card bill will be due and the limit will expire. So, it was precisely in the state that our government received the economy—at a time when the bill was due, our highest-ever repayment was due, and our limit had expired. Nobody was willing to give us more loans. The Asian Development Bank, during the period of the previous government, suspended their budgetary support lending because our losses were very high.”

He also emphasised on how tough decisions had to be made, with them having no choice in the matter:

“It is obvious that when you move from an over-expanded economic phase to a phase when you have to move according to your limited resources, you necessarily need to face temporary hardships—which are what we experienced last year. Undergoing this transition is important, but I will stress again that it is also temporary. It is important to understand that it is temporary. We will come out of this phase now.”

He summarises the IMF’s message and goal in brief for us:

“Also, the IMF had placed no such condition on us. See, what does the IMF say? IMF says that if you are creating expensive electricity and selling it cheap, then it is obvious that a time will come when your power sector will go into bankruptcy. IMF cautions that your imports are increasing whereas your exports are declining. You have to pay back your loans, and a time will come that people will stop giving you most loans, causing you to go into default. Therefore, stabilise your economy. Lower your losses. This is what the IMF says.”

Mr. Azhar also added that good times were coming:

“For this purpose, we had to make these temporary adjustments in the first year. Most of the adjustments have been made and we will see improvement in the coming period.”

How are you bringing non-taxpayers under the tax bracket, and ensuring that the process of accountability is implemented across the board?

He elaborated on the government’s strategy at length, saying:

“There are two ways to collect taxes. One way is that you incentivise the people, meaning that you draft such policies which ensure that the people who pay taxes get more benefits. They will be giving you more money, but this process should be made easy for them as much as possible. We are trying to move towards automation. So far, we have automated many processes—including sales tax registration. Additionally, we are separating the audit from assessment, in order to bypass the FBR’s corruption, to reduce the give and take between the officers of the FBR and the people. One (way) is that you should incentivise it. We have launched a mobile app. (The aim is to) make taxes easy for the people—which is something we are working hard to achieve.”

“Secondly, enforcement should be made better by digitisation and automation—another front that we are working on. For the first time, we collected the database of NADRA, which is present on the FBR’s website. Over there, you can see that we have started to trace people. People who have millions and billions in their bank accounts, but they do not even file their return. We have started mapping them. Digitisation and technology allow us to do this. That is why; the number of filers grew from 1.9 million to 2.5 million within a year. We will take this figure to 5 million within a year or year and a half.”

“Broadening will, therefore, be done through incentivisation, whereas enforcement will be in such a manner that it will be completely centred on technology. Additionally, we need to completely eliminate the interaction—or at least bring it to the minimal level. So that the FBR and the taxpayer interaction is completely eliminated. So, this is our strategy.”

This means that giving incentives to tax filers with digitised taxation processes and enforcing tax filing using technological tools are the key goals here.

Do you see any flaws in our current reliance on the GDP and economic growth statistics to measure progress?

The Pakistan Bureau of Statistics was formed to correct a major flaw in the reports generated by the government and the Ministry of Finance in the past, and Mr. Azhar elaborated more on the topic:

“There are many flaws. One is that our data gets published late. Data collection at some places is done manually. We have reservations on its accuracy. We did one thing… Because the previous government was accused many times of fudging the statistics, which I think were correct. Hence, we separated Statistics from the Ministry of Finance. Because the former had to report to Finance and was under Finance. We recognised that there existed a clear conflict of interest (in this equation). Previously, the Finance Ministers used to raise the statistics unnecessarily to show more growth, which was not the case at all, actually. So, firstly, we made it independent and autonomous—The Pakistan Bureau of Statistics—and now we are going to reform it. The way you collect statistics, the way you structure and analyse them; we need to fundamentally rework that. And in the coming days, you will see that we will launch an entire program to address this issue.”

How do you plan to distribute finances in the housing sector?

 “One is the Naya Pakistan Housing Authority, which is basically a model, through which we will enable the private sector and foreign investors to invest in our economy and resolve our acute shortage of houses. Shortage of houses, not the shortage of plots, will be addressed.”

“Secondly, foreclosure laws, which are currently not enforced in Pakistan, are being developed, and we will give good news to the nation on this front in a week or two. I believe that the main reason why the banking sector is not lending for housing finance—it is only giving 0.25% and it should be up to 8-9%—is the absence of foreclosure laws in Pakistan. So the number one thing that we will do is to introduce these laws so that the money parked in the banking sector can be moved to the housing sector. We are also having talks with China for funding in the housing sector—for the poorest of the poor—and they have given us some novel ideas.”

“So, we are going in two to three directions. Number one, we will free up the banking sector through the introduction of foreclosure laws. Number two, we will enable the private sector for Naya Pakistan Housing Scheme. And number three, we are in talks with all of our foreign missions to make bilateral and multilateral foreign funding for low-cost housing available to us.”

Engaging private investors, introducing foreclosure laws, and successfully getting funding for low-cost housing from donor countries are the primary aims to boost the housing sector.

Given the current socio-economic condition of Pakistan, do you believe that the target of 5 million houses is an impossible one?

“They have been made before. If you look at India, they have built more than 10 million houses in four years. But, they too, have many issues in the statistics. The thing is, people often say that very little of the government’s money is involved in this. (They say that) maybe, at some point, the government’s land bank might be involved, but little of the government’s money is involved. (They believe that) money, in this case, will come from the banking sector, or the private sector, or through multilateral donors and we have done these projections. The money will come for sure, eventually, as long as we create an enabling environment in our country.”

Stating the above, Mr. Muhammad Hammad Azhar shared his take on how the economy works:

“There is a rule in the economy, where there is demand, there is supply; demand creates its own supply. We have a lot of demand for housing. Pakistan is currently facing a housing crisis and the private sector has to move in and fill that. The government only needs to enable that environment, and we are working on achieving this.”

How are you incentivising the private sector to come forward and play their part in the development projects?

“The best way to facilitate the private sector is to remove the government from its way. Wherever the government is in the way, through its regulations or NOCs, and hundreds of such problems, the private sector becomes apprehensive. Hence, the best policy to incentivise the private sector is to remove the government from its way. We are making a model, which is almost complete and will soon be launched through Naya Pakistan Housing Authority, in which the role of the government will be kept minimal; being only that of an enabler and a regulator. Be it through foreclosure laws, banking finance, or foreign funding, the private sector will be incentivised in every way possible towards housing. And I believe that if we do this… there is a lot of appetite for (investments in) housing at the moment.”

What factors have led to the issue of the housing crisis remaining unsolved?

After sharing the government’s plan in the question above, Mr. Azhar talked about how the housing crisis has always been an issue that has been overlooked and deemed unnecessary:

“I think no one has ever studied the housing crisis in Pakistan. No one has ever considered how difficult it is for a common man to buy a house or a plot. The prices of plots are heavily inflated; investors are involved in everything. It is now impossible for a poor man to build a house. I hail from an urban constituency in Lahore. Now, if you go and visit, there are some areas in the city where a single, small house is inhabited by 20 to 30 people. No one has ever studied it, as to how we should address our housing crisis. What role can the government play in this?”

He shared a few examples of foreign governments and how they’ve played decisive roles in providing housing to their people:

“You should go and see what Turkey has done. You should see Turkey’s model. They have set a standard when it comes to low-cost housing. Go and see what the UK has done. The poor there are actually given a roof over their heads. They don’t just raise a slogan for housing; they actually give it too.”

He concluded with:

“The people in Pakistan have never studied this issue. Due to which, foreclosure laws remained neglected and no government has given any attention towards implementing them.”

How are you introducing technology in Pakistan that will facilitate development projects with localised models?

Talking about low-cost construction materials and practices, he said:

“It would be more cost-effective for the private sector to use low-cost material. At the moment, these materials obviously have to be imported. But once a model is made available, which ensures their successful utilisation, then, I think, imports substituting industries would also get affiliated with it, and we will see many technologies locally that will facilitate the development of low-cost housing. We are in discussion with Turkey; we are in discussion with China—to facilitate the transfer of low-cost materials and technologies. This would enable the availability of another joint-venture facility. And, if you build houses with traditional methods, like with bricks and cement, then these are materials which are locally available. Their spillover on imports is quite less. So that model is also available.”

However, he also firmly believes that: 

“But as I have already said, where there is demand, there is supply. Once the trend of low-cost housing materials picks up pace in Pakistan, you will see the local industries which supply these materials, mushrooming in days and months.”

The State Bank of Pakistan’s revised policies for Naya Pakistan Housing Programme (NPHP), have a high-interest rate. In this situation, how do you see the financial system working?

Mr. Azhar also elaborated the government’s efforts to make the NPHP more affordable for the people:

“See, there are two things. First is that the interest rates are high now, but they will not remain high forever. I’m sure that as soon as the inflationary pressures in our economy start receding, the State Bank will lower their interest rate. In the meanwhile, we are working on this that the interest rates offered for Naya Pakistan Housing Scheme should be subsidised and the government should provide subsidy to the banks when they lend towards these projects. So, this model is also being considered.”

“Apart from this, commercial activities will also be encouraged in a few places—which will be linked to the Naya Pakistan Housing Authority—which will make these projects commercially sustainable and viable. So, this is a two to three multi-layered approach. I think that, as a result of their combined contributions, you will start to see lowered interest rates in the ensuing period.”

What message would you like to give to the general public?

“The message which I would like to give is this that the economy was in a difficult situation when we were given its reigns. Some hard decisions had to be taken. If these steps had not been pursued, then our condition would have worsened significantly. But we do realise that the condition of the economy is not favourable. To save it from bankruptcy, we had to make choices that resulted in a slowdown of the economy.”

“Now, we have started to reap the fruits of this commitment. Your foreign exchange reserves are rising. Your deficits are decreasing rapidly. This means that we are rapidly going towards the economic activity pickup phase.”

“We realise that there is inflation and we do realise that there is a slowdown. But the problem could not be fixed without going through this difficult phase. This difficult phase will end soon and the phase which will come after this, which, by the way, will come during the tenure of our government, not any other government (in the remaining, four-year timeframe) will be characterised by long-term progress. It will not be based on loans and imports, but on our domestic investments, our entrepreneurs, local ideas, and on the country’s dynamism and it would be sustainable “

This concluded our discussion with Mr. Muhammad Hammad Azhar on Zameen Interviews. We would like to thank him for sharing his views on what he believes to be the future of Pakistan’s economy. And, if his words are to be believed, good times are just around the corner as the country moves into 2020. Here’s to a successful year ahead!

Stay tuned to Zameen Blog for more updates on Pakistan’s economy and the real estate sector. We can be reached at blog@zameen.com for your queries and feedback. You can also check out Mr. Zaighum Mehmood Rizvi’s views about the Naya Pakistan Housing Scheme or any of our other interviews with other prominent personalities on our Facebook page.

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SI
SI is a creative soul with a flair for writing. Relaxation for her means seeing the world, reading everything she can get her hands on and spending time with her family.

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