Pakistan goes crisis to crisis because it keeps printing money

8AM Pakistan time, the markets are not open. In Pakistan, we have some information. Obviously, this news broke out around three to four hours ago. So the early signs suggest that The US has agreed on the 10 points, the 10 counterpoints that Iran had put forward. Iran had earlier rejected the 15 points that US has had had brought out. So for a lot of people, it's very very confusing because it seems like, at least that's what the analysts are saying, it seems like The US has backpedaled and The US was inherently looking for a an off ramp here and I think overall generally everybody around the world is collectively celebrating this decision because we were at a potential mutually assured destruction pathway if this had continued for a few more weeks. Obviously, right in the aftermath, bitcoin rose up 3 to $4,000. US stock market futures rose. Dow is up 900 points. Obviously, this is the futures market. The actual market is going to open up tomorrow and we'll see what impact is there. Japan was open. South Korea was open. Both are up four point six percent and five point six percent respectively as of right now. Crude oil, you know, we've all been talking about the the expensive oil prices. It actually crashed. It actually crashed with The US crude following 14.3% and coming down to $96.83. Again, after a long time finally below $100. So, collectively everybody is finally breathing a sigh of relief. We're hoping now that these two weeks will be used for some sort of a successful negotiated settlement. For Pakistan though it is very very interesting personally as a पाकिस्तानी I mean I was looking at x and I was looking at all these world leaders celebrating and thanking Pakistan and I kept on thinking of that meme from that वकार दक्ष show of you know मेरी selection हो गई यह वाली because honestly as a पाकिस्तानी it does make you feel a little bit weird why are we being so respected considering the history that we've had but it's a proud moment for Pakistan it is an incredible moment for Pakistan I think I there are a couple of things that I'd love to say here Obviously, there's a lot of hate coming in from India because they wanted to isolate us ten years ago and somehow Pakistan is really at the center stage. On Friday, leadership from The US and Iran is actually going to get together in Islamabad to potentially negotiate and if this pans out successfully, it's going to be called Islamabad accord and it is going to be written down in history potentially Pakistan solving world war three or ensuring that world war three does not start. It's a it's an incredible victory and incredible diplomatic success for Pakistan. So for Indians, mean, I feel like, you know, you guys need to get out of the धुरंधर movie mindset. You need to get out of the sort of filter bubble that you've created and your government has created and really begin to see the world is changing. There is a shift happening from a unipolar to a multipolar world. There are a lot of changes happening and I feel like you guys are not realizing that and maybe this might be a wake up call for you rather than screaming at us and you know making fun of us. Maybe this is some time for introspection. For within Pakistan I'd start off with the PTI supporters because there are I would say nine out of 10 are celebrating this they are inherently saying you know this is Pakistan's victory and as पाकिस्तानीs we're all supporting it but there are definitely sporadically some PTI supporters who are like oh you know this is going to embolden the current government. For starters you know even with the war in India whenever there is something happening outside of Pakistan that is a you know diplomatic front or a global front No matter what the politics are internally we all at the end of the day have to stick together and we all do stick together. So I think it is sort of unfair if you bring politics into this and while I say this to the PTI folks I also say this now to the other side who are saying, know, the PTI folks are crying because, you know, look at the current leadership and they've achieved so much. I think, the current leadership has definitely achieved this. It is it's an incredible victory for them. But keep this in mind that it is the policy that the PTI always used to say as well of of negotiations, of talks. And I think this is the most you know successful outcome that we could have generated out of all of this. Could have gone in on many other ways. We could have become part of the conflict but we didn't and I think that's something that any leadership no matter this government, no matter previous government would have taken the same decision if they were truly a lawyer to Pakistan and I think the fact that this has happened shows you across the board that there is loyalty to Pakistan from पाकिस्तानी and I think we should all be celebrating that. Having said that, you know, I would love to now know where this is going in terms of the economy. Obviously, we had been worried last three four days we covered extensively what might potentially be the fallout if this sort of, you know, this this war holds out for a few weeks. Now that it is potentially and I I would, you know, give a little bit of caution here. This is a two week cease fire. A lot can still go wrong. There can be potential, know, Israel potentially can try to disturb it. There are other parties that may not be very happy, and we're seeing that on x as well with this cease fire. So a lot can go wrong. But assuming that, you know, whatever has happened now begins to reflect in the markets in the economy and this holds true, what are the potential impacts? For that, we have with us the director researcher at Chase Securities, युसफ M Faruk. He's previously been on the show as well. युसफ़, thank you so much for taking the time out and coming here. सामिल, thank you so much for inviting me. I'll start off with, first of all, trying to get a sense of, you know, how does, how do you feel about the current cease fire? Are you relieved as an investor? How is that going to reflect on on on the markets on the sentiment now? I think everyone's relieved.

I think everyone was very stressed out about what's going to happen especially in an economy like Pakistan where you've got a lot of external vulnerabilities, your, your fiscal account does not have a lot of space which is why you had to increase oil prices, you had to keep some taxes on petrol even though the ones on diesel were removed. So then you've got, then then you've got this vulnerability on your current account that if you don't pass on these prices, you'll start getting a current account deficit again. So I think in an economy, in an economy like Pakistan where you don't have reserves, where you don't have a lot of buffers, I think every, this was a very stressful situation. So Pakistan stepping up and the government stepping up. Pakistan has I think done this more for Pakistan than for anyone else. Because this was very close to home and this could have caused a lot of economic pain in the short term.

Makes sense. What do you expect though? Will will will, how do you think the markets will react? I mean, obviously, there are twos, two narratives right now. Obviously, immediately the euphoric narrative says everything is solved. The world is going to be hunky dory again, and we can go back to, you know, building. There is another narrative, that says that the the the pause in between the five to six weeks where the oil wasn't flowing, the damage to infrastructure that has happened, the force majeure contracts that have been pulled out, a lot of the machinery was closed up and it's going to take a while for it to start. And so there will, there might be, we might go back to normal but there will be a lag effect to that. And so how do you see that reflecting

overall in the markets? देखो, I think overall for most investors, I think the conversations that I have had in the last month with people, I have been saying that the day that I joined the market, the market was at 11,500 points. This is late two thousand eleven. The market right now is at a 150,000 points, which is a 20%, केरल. And, stock market returns have got a lot more to do with how efficiently capital is allocated and less to do with the economy. So we've had very high returns in periods where oil prices are also high. So so for most investors, maybe 99% of people investing in the stock market, What happens in the short term should not matter. Say, funds हो गए और someone who does, who does some speculation or someone who does a lot of trading, this matters. But for most people, this does not matter. This is possibly a good opportunity to buy stocks because stocks were trading at nine times earnings in January. Now they're trading at probably six and a half times. So if you're with, so you should be more aggressive than you were in January. But you should be less aggressive than you were, say, two and a half years ago when the market was trading at four, five times earnings. So you should be slightly more aggressive. The impact of all the destruction that's happened in the region, we will find that out gradually. Of course, supply for most things is not going to come back online at once. I think some petrochemical facilities have been hit. Some infrastructure has been hit for transport. So oil prices might not come down that quickly. But what this is going to do is that this is going to increase oil production globally, and everyone will try to spend more on, exploration. And you might, in the medium term, see oil prices coming down below levels that they were before the start of the war. Is that, so that you expect because of oversupply like everybody supplying more than? I think every country after this event is now going to try to look for indigenous sources of oil. And the other thing that's going to happen is that a lot more money is going to be spent on exploration because countries will want to have their own supply. So, so so once this ends, you might see oil prices that are lower than where they were before this because I think countries are also going to go for an electric push after this. And countries are going to try that they're not this reliant on other countries for energy. Despite saying all of this, I think investors especially should be prepared for all situations. Investors should also be prepared that this does not end in two weeks. So you should always have proper asset allocation, you should always have some fixed income, you should only invest in the stock market, money that you don't need for ten, fifteen, twenty years. You should not be putting in short term cash into a long term instrument. So so, yes, you if if this if this works out, you might see multiples relating again. You might see some yields for long term bonds in Pakistan had gone up. You might see them coming back down. There was this fear that interest rates might start going up again. We might not see that since the issue is resolved. Even if current account numbers worsen next month, I think in months after that you will see numbers improving again. But everyone should be ready for all situations. The the thing with the stock market is that you have to look at what's going to happen in ten, fifteen, twenty years. And this is the same thing that I've been saying to all of our clients that the day that I joined the market, the market was at 11,500 points. Everything that was possible that could have happened has happened. We have had COVID, we have had wars, have had Iran, US conflict, we have had a conflict with India, we have had floods. Where the market's given a 20% return and that has had very little to do with the economy. And that has got, has had a lot more to do with the efficiency with which capital is deployed. If you want me to explain how this works is that, say you set up a, let's assume there's only one company listed at the stock exchange and that company invests 200,000,000,000 to set up a plant and makes 40,000,000,000 a year. And there is zero growth in the economy, so there will be no volume growth. They don't have to reinvest capital. So on that 200,000,000,000, if they're making 40,000,000,000 and they pay out that 40,000,000,000 to you every year, you're making a 20% return every year. So even if the economy is not growing, you're still making that return. So stock market returns have got a, have got long term stock market returns have to do more with the efficiency with which capital is deployed and less to do with economic growth. What economic growth does for stocks is that there are some companies that can make very high returns on capital and when there is growth then those companies can redeploy that capital at very high rates. So if you look at what's happened in India, some companies have been able to deploy capital again and again at thirty-forty percent for very-very long periods of time. So, but overall stock market returns, they've been around 20% long term and they've also adjusted for inflation. So so when we talk about what seven on 2011 to now or from what seven on 2000 to now, You also have to remember that in 2011, the पाक rupee against the dollar was at 90 rupees. And now it's at $2.80 rupees. So that is a devaluation of around 8% each year. But stock market returns have been around 20% each year. So that also gives you a hedge against inflation. But it gives you a hedge against inflation in the long term. It does not give you a hedge against inflation in the short term. So you always need to have some cash, some some allocation to fixed income, some allocation to maybe gold, and only invest for the long term. There are people who are going to speculate, that's I think not a conversation for a public forum. But part of our job is to figure out what to do tactically but strategically what you need to do is save more each month, work hard on your job so that you get paid more. Figure out how to save money, how to make more money and how to save more money. I think we, I think we don't focus on that conversation as much. That people need to work hard, save more regardless of your situation. Like we've seen situations like there are people at our office who, who came in as riders or, came in as T boys and they have started saving and their portfolios have now become, fairly large. Even despite saving only small amounts of money. If you say small amounts of money, it does not mean that you'll retire when you're 30 or you're 40 or you're 50. But over time, you will save enough money and make enough returns to to have a comfortable life.

Some sort of safety net sir, right? I mean for for a vast majority of पाक्सानी they're just living paycheck to paycheck. I think that safety net is very very important in terms of how you make your decisions and how you live your your life. Yeah. If I were to sort of expand the conversation, I'll pause the markets for a moment, and I want to really understand the economy. And I know you follow that closely. You've mentioned economic growth a couple of times. How do you see Pakistan's current situation? What's going on? We were hearing or we were beginning to hear stress coming in, obviously, with The UAE loan going out. There was potential for stress in the, you know, forex markets, potential devaluation. We're hearing about interest rates going up. And this was obviously, yes, it was in the backdrop of of the conflict. But there are structural inefficiencies in Pakistan. And at a time of a downturn that we saw globally, those inefficiencies really came out, in the forefront. So so what's going on in Pakistan? How do you see the overall economy? Is it stable? Is it, growing steadily? Or do you think we're in a sort of spiral right before a bust?

I think we've come out of a crisis in twenty to twenty three. The major problem with growth in Pakistan has been that there are that that that we go from crisis to crisis and we've been doing that again and again. So we had a crisis in 2008, we had a crisis in 1998, then we had a crisis in 2008, then we had a crisis in 2017, then we had a crisis in 2023. All of these crises have mostly happened because the government ends up printing too much money too quickly. And then Pakistan has a current account deficit. And then to fund that current account deficit, we use our reserves. Once those reserves end, you have to devalue the currency. So, Pakistan mostly has to devalue its currency so frequently is because we keep printing a lot of money. The government, this year's budgeted fiscal deficit is at around 6,200,000,000,000. This is despite the IMF program and everything. If there are slippages there, you will see devaluation. If there is if there are no slippages there, you're probably not going to see very a very large round of devaluation. Your average for the last fifteen years has been 8%. Your average probably, I'm not sure about the number, but your average for probably the last twenty five years has also been 67%. So six seven to 567% in Pakistan is fine, and that's the long term average. Problems arise when that has to be done in one year. When when when six seven eight years of devaluation has to be done in one year. Right now what's been happening over the last year is that the central bank has been buying dollars. So Pakistan's artificially kept its currency slightly weaker than it should have been.

Ok. So No but how does that sort of work out? Because Indian rupee has been falling against the US dollar. I understand I mean the US dollar was falling and so when you look at PKR, for example, it was pegged to the dollar but it was falling against all major currencies, bound, so on and so forth. But then a lot of other major currencies are also devaluing at least more recently were devaluing against the dollar, Turkish lira, Indian rupee being a couple of them. And then Pakistan was stable. And that's why it was very confusing to me what was going on there. So what you're saying essentially is that we haven't, I mean, we haven't spent money to control the dollar. We're actually buying out the dollars,

to to make sure that it doesn't appreciate against the dollar. Is that what's happening? Yes. That is what has been happening. The central bank has been buying dollars each month to keep the currency at one level. The rupee would have been stronger but I feel like, maybe it would have been a better idea to keep the currency even weaker and build some reserves. Right now, Pakistan has a flat current account. Neither have a large surplus nor do we have a large deficit. The number ranges anywhere from minus $304,100,000,000 to a positive $304,100,000,000. So, right now the current account situation is stable. We've had large rounds of devaluation, when we've had large current account deficits. So right now we do not have a large current account deficit. What would have happened if these if if this war would have continued and if the prices would not have been passed on. Like, we've had situations where prices were passed on and there are situations where prices were not passed on. In 2008, prices were not passed on as upside he was given. So so we then had a current account current account deficit. Other things also happened. If you look at what happened from 2011 to say 2014, oil was above a $100. But because it was passed on, we did not have a crisis. In 2023, 2022, 2023, oil prices were not passed on. And that led to the government printing a lot of money because it was giving large subsidies. When you print a lot of money, that starts reflecting in the current account. And you had a large current account deficit that needed an adjustment. So for a few months, we used our reserves, which was a terrible decision. And then after that, we then of course had to devalue the currency and that led to a crisis. So so what so so I think what we are looking for is is stability in the fiscal account and stability in the current account. If the current account remains stable, you're you're not going to have a very large devaluation. And when you have those large devaluations, that leads to large when you have large devaluations that leads to large rounds of inflation that leads to, these yo yos and interest rates. And one large problem for both the elements of economic growth, both labour and capital has been that you've had these large yoyos in the economy, both for inflation, interest rates, job growth. So, so I think you've had these very large yoyos. Now if we look at, I think we had this discussion the last time we met also in on your podcast. So so there are there are two there are two main components of economic growth. So so the way that we said that stock market returns depend on, how efficiently capital is allocated. So if you make 20%, the stock is going to probably keep growing at 20%. So for the same way, economy depends on how labour and how capital is allocated. And if And that is not ideal in Pakistan. One problem for both capital and labour has been these constant economic shocks. The last time we met, we were talking about the manufacturing business that we had set up. So so it's not great to have these shocks when you're trying to run a manufacturing business or any business for that matter. So what happens with labour is when you have these shocks, like, if you look at the government data, you will see that educated people start have left a lot of educated people left Pakistan in 1971, a lot left in 1998, and a lot left in 2022 and 2023. So you see these spikes in people leaving. So your best resources, start to leave the country when when they when you have these economic shocks. So so that's that's one problem. Then the other problem that you have is that, now this is more of a structural problem that your demographics are set up in a way and your female labour force participation is set up in a way that out of a population of 240,000,000, a 116,000,000 are of working age and because your female labour force participation is so low that only 60 to 70,000,000 people are working in the economy. So this GDP that you see, you divide it by total population but the total number of people working is probably only 60 to 70,000,000 and that is very low. So this is a structural problem. Then another structural problem that you have in the budget is that you have an enemy like India, that is very aggressive and, and your relations have not been great. So, your defence budget as a percentage of your GDP has been higher for a very long period of time. So that is going to remain a drag on, the economy. And now we've realized after this war how important that is also. I think after every few years we're, we are reminded of how important keeping that expenditure is. So, I think, so for labour there are these issues that your workforce is not trained because you haven't spent enough on education. Vietnam has been spending 6% of GDP for a very long period of time. And grade five students in Vietnam are now, better than grade five students in Europe when it comes to science, maths and some subjects. So you haven't been spending on education. So you've got two forty million people who are not very educated. 25% of women are working. So you've got a very small workforce that is not educated. So so that we mostly have are on what's going to happen to economic growth this year, what's going to happen next year. That is not what's important. What's important is how fast is the economy going to grow in the next ten years? What will happen in the next ten and then what will happen in the next ten? Short term economic growth numbers can just come in because the government has pumped in cash, which we've seen from time to time that the government will try to get to 6% GDP growth. But because the economy cannot sustain it, you then have these deficits and then you have crisis situations. The problem is that the workforce that you have is not productive and there has been no effort and no effort has been put in to, to change that situation. The second factor of production which is capital, the same, you, you've got similar issues with, with capital also. So like, if you have these crisis situations again and again, you will, so after nationalization in the seventies, you saw capital moving up. Now every state in Pakistan wants to keep some money abroad that so that the government does not come in and nationalize things. So, so that's, that's one problem for capital. That you have these crisis situations again and again. So, you reduce investor confidence by these yoyo's. Nobody wants to invest long term, everyone's looking for short term, for ways to make money in the short term. And if you really want to set up factories and you really want to set up businesses, you will have to think long term for that. What is required is that people do not think that these yoyo's are going to happen. Then there are some very bad signals given by the government. In in Pakistan, if you notice, Khorram Hussein also says this, that in Pakistan, it's the government that decide who makes money. So, the government has given a lot of wrong signals also for capital allocation. So, if you look at what's happened from 2000 to now, you will see that a lot of duplicate capital allocation has happened in the power sector. So the government has these power plants. Every business in Pakistan also has a power plant. So they first had a furnace oil based or a diesel based power plant, then everyone went to gas, then everyone went to coal, now everyone's going to solar. So you had a lot of capital that would have gone into machinery and into growing businesses. A lot of capital has been going into, say, power, for example. So so capital allocation has also not been great. Then you've got some, then you've got some small problems like, like Hyderabad Sucker Motorway नहीं बना हुआ. Like you, you transport goods to Karachi and then you have to get them to the North and there is one patch of road that, that wastes fuel for everyone and, and increases prices for everyone in the North. Then another structural problem that you have, especially for exporting, is that you've got a very large population in the North Zone. And in the South Zone, there has been no development. Like we've been, I've been crackly trying to crack these jokes and if trying to get everyone's attention on University Road. Like, Karachi is in ruins. Like you cannot get मतलब in लाहौर if I have, if I have ever gone for meetings in लाहौर, I can have meetings in लाहौर in four corners of लाहौर in one day. But if I have had one meeting in sight in one day which is one of which is the largest industrial zone, can't go to करंगी the same day.

Because the traffic is so bad and because युसफ़, if I were to stop you here and ask, you mentioned earlier कराची सख़्त Motorway as well and that to me, कराची, हैदराबाद कराची. कराची? हैदराबाद सख़्त, I think. And that to me has always been fascinating, right? Like, it's not that big of a patch. You created motorways all across the North and suddenly you're unable to. I'm curious, is this, I mean there's a conspiracy theory also where people are like, know, there's a there's a particular party that loves to create a collect tolls. This this is, they they they ensure that there is no structured motorway that is owned by the federal government so that the transportation goes through, you know, non motorway routes and you're able to collect tolls or so on. But even if the conspiracy theory notwithstanding, I mean, you've tried to, at some point, must have tried to rationalize why South has not been developed. I mean, even the most, people gave me the idea, the argument of corrupt politicians. Right? Even the most corrupt politicians, like, if this is your base of making money, just fix it so that you have more money to embezzle. I mean, that just it's a very basic structure. Right? And you have parties that have stayed there for decades now. So how do you rationalize the lack of development? Because it's not a a a lack of capability. We've we've seen the capability up north.

What's going on there? I really don't want this to turn into a political conversation. I just feel like there are some things that if when you want to operate in Pakistan, you accept some things the way that they are. If this gets built, there are there are investments that will be made and there are then there's stuff that's going to happen. You, your outlook for the future is going to start to change when the government takes certain steps. Like, for example, when they passed on petrol prices, they were like, okay, now they've started to do the right thing. And this is not going to end the way that it ended in 2022 to 2023. So when the government does take, when the government starts to take some steps, you, you allocate capital in a certain way and you think about things in a certain way. But yes, we do have a problem where you have one particular political party, the performance of which has not been great. And I think you'll have to call, invite someone from that party to the show for them to explain why this is not being done. And I really don't understand why a lot of things are not being done. A of, a lot can be collected in taxes from Karachi But you need to fix the city first. You need to fix the city first.

But do you think it's a matter of I mean because again I don't wanna I don't wanna bash a single party because it ends up it's such a meaningless affair. Everybody does that. Structurally though, I feel like I've I've had I've heard people say, oh, you know, the reason why that particular party or people's party, for example, does not do anything in Karachi is because Karachi is such a quagmire where some parts of it is is under the army, some parts of it is with the PPP. It's a it's a administrative nightmare. And, therefore, because it is unfixable and to be very honest, I I will say this right now. The same level of the, you know, the the cup and the craziness you can actually begin to experience in New York as well. I visited that recently. So I do understand the megacity problem. लाहौर, on the other hand, is much simpler as a city to solve because they are really just sort of building that city out. कराची is a मशहूर growth. It's a, it's such a मतलब इतने गिरे बिंद बंदे हुए हैं कि उसको unravel करते हुए भी it's gonna take a while. So not just targeting one party. The problems with that party everybody knows they can go on YouTube. Is there a structural, the way that the city is governed, the way that the incentive structure exists where you might actually gain? I I genuinely feel like there is not a lot of gain for the power players of the region if they actually invest in in कराची. For लोहौर, on the other hand, if PMLN invests in लोहौर, they get the votes. And there is a very real power play there and a return on investment for them. I feel like that's missing for कराची.

I think someone, someone at some point has to fix this. If you want the economy to grow and if you want Pakistan to do well, you have to fix the main artery. All your good come in through Karachi. All your good go out through Karachi. If you want to have an export industrial base, you need to have it close to the port. And Karachi is set up to do that. So if some, so somebody has to fix this. Now we no longer have the problem that the government that's in power requires votes. I really don't feel like the government has required votes for a while in Pakistan. I think we have all the disadvantages that a democracy has. This is a disadvantage of democracy. Politicians will do things in places where they get votes. And, so you have that disadvantage also and then you have all the disadvantages of autocratic governments also. So you have got both. And you need to pick a system and then you need to run with it. And you then need to run with it for twenty, thirty years. Ideally, you should be running with a democracy for twenty, thirty years. But but there has to be some kind of stability and these things need to get done.

You mentioned the main artery. I wanna sort of go deeper into into Karachi because I feel like what what the what the recent war or or or regional conflict has shown is that there might be, that's my speculation, there might be a shift coming in the way that sort of region works, particularly because even with the current ceasefire announcement, Iran is still going to be charging a toll tax. They're opening the straight, but they have sort of formalized the system of toll collection. And they're saying, basically, they're gonna be using that toll to rebuild or whatever. They're not asking for reparations anymore. They're saying we're gonna use that money to rebuild whatever has been destroyed. But that really changes the power dynamic of the region. That obviously changes the importance and the security or or the risk premium for Dubai. Right? Yeah. And for Pakistan that changes a lot because historically you mentioned earlier, you know, your investors don't come in or even your local investors were just like they would invest in to just double the money and then they would park it in Dubai. Suddenly Dubai is not as of much of a safe haven as it was previously. Dubai obviously was also previously run as the sort of this ultimate transit destination where materials from all over East Asia would come in, park, distribute and then eventually go to Africa and Europe. Now again, if the risk premium is higher, there is a potential opportunity for the nearest port, which is again गवादर और कराची to potentially take some of that business. I think again if we if our leadership is smart enough, I think we can leverage this newfound respect that we have and importance that we have and the changes in in in the dynamics of the region to potentially create value. How do you see that aspect? Again, because that would require very clear ease of doing business, rule of law, infrastructure availability for that business to come in. Right now, कराची is barely functional for even people from up north. If I could go to कराची, I find it confusing and overwhelming. I probably can't do business there. I don't know if international businessman can.

I think the, I think there are two parts of this being discussed on the internet and in drawing rooms everywhere. One part is that the the money that people send to Dubai thinking that it's a safe heaven. And that has happened because we, like we discussed that we have these economic crises again and again. So people want some cash safe and they want it in another economy. So that cash had been moving to Dubai. If we keep having these economic crises, people will find a different destination to send that cash. It's not going to be Dubai, it's going to be some other place. Singapore is too far away which is why we had Dubai at this as this destination and people would not send money to the Far East because when you have money in Dubai, flight is just two hours, Singapore is further away. So I think that's one angle. If we stop having these economic crises and people have investing opportunities in the country and they feel safe in the country, I think money is going to stay. The other thing is transshipment. I think that's already started. I think those volumes can stay up for a while, especially if Iran imposes a toll, which with the information that we have right now, seems like that is going to happen. So I think Pakistan Karachi is going to get additional transshipment business. I think we so so businesses at the port are going to do well. So we might need a port expansion at point at point. We might need some investment there. I think that's a good opportunity that's opened up. But for the capital outflow part, we have to fix other problems to fix that. So यह कराची right now has become safer than the way. Yeah, at least for the last month was. Which is very surprising. But but I think that cash has flown out because we've had these constant economic crises and currency devaluations. That has to end. I think good step by the government. They increased fuel prices. And the other thing that I think I feel like everyone also has to understand is that subsidies on petrol really don't make sense. The two weeks that we had 100 rupees of subsidy on petrol, I put in 60 liters in my car. So I got 6,000 rupees in subsidy for those two weeks. And if you ride a bike, you probably used five, six liters. So you got, so someone on a bike got 600, I got 6,000. So it did not make sense. The other thing that we have to understand is that there are 6,000,000 cars registered in Pakistan, probably 20 five-thirty million bikes in the country. So, so you probably have 70 to 80,000,000 people with no access to a bike or a car. Those are the people that you need to protect. You don't need to protect the people that already have a bike, especially not the ones that have a car. So if you're giving a subsidy, that's a very big problem. So I got paid 6,000 rupees in subsidy. Most people with a bike probably got 600. So that's just unfair. And because it's people like me who can raise their voice on social media, make a lot of noise. So you end up getting these petrol subsidies. And I think the whole country needs to understand that this is not sustainable. पीछे से price बढ़ दी. Someone has to pay for it. And and I think what मिफ्ता सेब स्ताब for example has been saying on Twitter is that you should be deregulating this sector. The government should not be involved in setting petrol prices. The government can from time to time come in and, increase or decrease petroleum development levy or taxes or whatever but the government should not be involved in setting prices.

If I were to ask you, you you mentioned deregulation, and I wanna talk about this across the board. I feel like most people don't realize that it's it's it's it's a kind of a primitive economy whenever you have, like, these sort of price controls and and and and extremely regulated markets. If you want to create a complex economy in Pakistan, would be a complex economy. It's a it's a country of 250,000,000 people. You tend to give examples of, let's say, city states like Dubai or Singapore or this or that, but those are very very different economic dynamics to to begin with. For a country like Pakistan, you will have to let the market find its fair value and therefore begin to be more efficiency seeking. In the in terms of what the government has done over the last couple of years, whatever you sort of heard and seen, Based on whatever people that I've been speaking to, people have been proponents of deregulating the the food market. Our entire agriculture supply chain, the reason everybody says is the primary reason why it's so messed up is because at at at the tail end of it, we're controlling prices. And what we're essentially doing is we're making the farmer subsidize the food for the city dweller. And, obviously, if the money does not flow to the farmer, there's not gonna be a lot of innovation, and, therefore, your your yields are are are going to be terrible. And so that's, again, extremely unpopular. Right? If your OT is, like, double the price, suddenly, the entire country is, like, what what's going on? But then you can't really increase the overall productivity of your agriculture economy, which is 30% of your your total economy unless you do this seemingly unpopular, take this unpopular step. Same with dollar. Unfortunately, we always we we keep on coming back to it. Maybe right now we're doing it as a way to keep our currency weakened. But perception wise, for the average user, they're like, okay. It's a 280 rupee dollar. That's fine. The next time it's gonna be 300, 310. They're gonna be like, oh, the world is ending. Even though it's not really. I mean, we're it's just market trying to find parity and and and making sure you you you you have optimization. So do you think the the the policymakers are beginning to understand deregulation as a potential, like, waste step forward and and letting free market really because I I don't expect the governments to be smart enough to regulate the market and also be able to make those decisions. I I I do expect in a complex system like Pakistan for the markets to be able to eventually evolve and then find that efficiency?

I don't think that the policymakers don't understand this. They all understand this. तो it is the politics of this that is very difficult. If you look at what's happened in for example, what happened after deregulation agriculture in say Chile or what happened in New Zealand or what happened in Russia or what happened in other countries where this deregulation happened? You had a very tough few years. Say you in Russia had bankruptcies in New Zealand, you had bankruptcies of farmers. यहां पर इतना debt वगैरह नहीं है farmers के पास, formalized तरीके से. So, so that's probably not going to be a crisis. But you saw what happened with the wheat crop. Income suddenly fell and and so so the sector will have to take some short term pain for this to happen. For deregulation to happen, every sector will have to take some short term pain. But policymakers and politicians will at some point decide to do this if they want this to work. If this does not happen, resources will move to sectors that are deregulated. For example, anything to do with the Internet? Can't really regulate it, you've just had a spectrum auction. I don't know why that got delayed so much and why the internet speed is so bad. Then you've got this chicken on chicken and egg problem of average revenue per user and infrastructure spend. Telecom companies just have not been making enough money to spend so much on infrastructure. Now that the sector is consolidated, they start might start making some money and that money is going to gradually get invested, and speeds are going to improve. After the spectrum auction also, after probably this five g thing also, more bands available. So four g speed should also improve over the next three to six months. What that also does is that it unlocks a large portion of your population for business process outsourcing work also. Like, you can be sitting in धट्टा or you can be sitting in बहावलपुर and you can get a lot of work done online. And I think once internet speeds improve, we're going to see that happen. It is difficult, it is structurally difficult to run manufacturing businesses in Pakistan because they're over regulated also. So this is the sector where there is no regulation. People can work independently. Pakistan is possibly not the best place to start a manufacturing business, but it's an amazing place to start an online business once Internet speeds improve. Because your overhead is so low in Pakistan that it's very easy to price any product that you want to sell abroad. So I think a lot of BPO businesses are coming up, they'll get larger, and a lot of work still going on. Like in our industry, there are a lot of people who are doing equity research, for example, for foreign funds and getting paid in dollars. And that's a good source of income. You have an analyst over here who would probably get paid 200,000 rupees a month. If you want to hire the same guy abroad, you'd have to pay 60,000 or 80,000 a year. So So resources here are a lot cheaper. The analyst working from here is also happier because he can get a pay that probably a local company would not be willing to pay. But so so there's a lot large labour arbitrage opportunity available that can be unlocked because of the internet and because of speeds improving.

Now that we've had this spectrum auction and five g and I think internet speeds could improve significantly over the next six months. So so that is one. That that part I understand. But what about the the the non IT because I feel like that's also a cop out right? Like that's every government comes in and says we're gonna invest in IT and we're gonna get $30,000,000,000 of dollars coming in right? What about the local economy though like how do you increase those agriculture yields? How do you ensure with the power sectors the same problem with the with the fuel नाम मिफ्ता and a bunch of other folks are saying again let deregulate the markets and let let the markets define it. Take let go of the political nightmare that you have to face every time the market has to find efficiency. Right? So do you see that happening considering again we have a sort of we're beyond the the question of the political vote bank and we are in a semi autocratic state. Why don't we just then do it? If we did we have created and consolidated that power, then let's take some right decisions,

and that might help out in the long run. No. I think I think that is happening, but it's happening very slowly, and it will continue to happen slowly. And it's not going to happen quickly. Have doing it quickly. You need a shock to the system. I don't think anyone's ready to do that. I think some steps have taken in the last, few years. For example, you were not given a wheat support price even though that might have been done because of the because the IMF asking you to not do that. But, there was no wheat support price. There was no sugarcane support price. So we are moving in that direction. You have deregulated high of 10, I think. I think, there is a plan to deregulate that also. Nonessential medicines have been deregulated. So I'll, so I feel like we have moved in that direction. Like, there is an improvement from ten years ago, but a lot more needs to be done. Then we have started to see privatizations also. PIA is off the government's books now. So whatever is going to happen with this price increase is the problem of the new owners. Even though they have like made a post and all this was why it was sold because the government and people of Pakistan do not want to think about what's happening to jet fuel prices and happening to the situation which was why it was sold. So, it's very difficult for the government to run companies. It's a good idea for everything to get privatized. Privatization is going to happen. It's going to happen slowly. And I think उसके लिए भी एक environment चाहिए. You need a low interest rate environment for all of this to happen. And you should not be always thinking about foreign investment. There are local people who can buy these companies, turn them around. And foreign capital is not our problem. If you are going to start to get foreign capital once locals start investing And you do not need to take external debt to do all of this. You can do all of this with, your external account at zero or a $500,000,000 current account surplus also. And if you're doing that and if you do a 500,000,000 rupee current account surplus and the currency, even if it's slightly weaker, you can end up paying back $500,000,000 or $200,000,000 in loans to loans every month. That improves your international situation. Like if you look at what happens to पाकिस्तानी online whenever you're having a conversation and the comments that Indians make and the comments that people from The UAE make for example. वह बहुत अच्छे comments नहीं होते हैं ना मतलब हर बात पर भिखारी, हर बात पर भिखारी भाई we have not borrowed that money. It's the government that borrowed that money.

अच्छा मुझे यह बताएं कि I am gonna throw the last question at you. I know that you have to rush. The markets are opening and it's an important day. But I'm curious though what's your understanding of the energy? And I I know that energy is with this conflict even more so we saw that energy is the lifeline of all economies. Pakistan obviously had had beyond the oil and gas, Pakistan had a huge problem with even the electricity prices with with, you know, the capacity payments and so on and so forth. And I know that that is an inherently an impediment in in Pakistan's sort of growth as well. So I'm curious how do you see the overall energy economy of Pakistan and with the shifts now with with the region in recent conflict because I was seeing the petroleum minister yesterday saying that there might be now some development in the Iran pipeline as well. I saw that the Burjustan government had has literally officially set a price for Iranian petrol all across Burjustan because previously, we were like, oh, you know, it comes, it doesn't come. We don't know. Now we're literally just sort of almost on the edge of yeah. So we're giving an official price. Right? So, effectively, what that means is if this sort of ceasefire and and and potentially some sanction relief happens to Iran, we might just be able to benefit, particularly because we were the ones who have actually helped Iran get on the table. We might be able to potentially get some cheaper gas, cheaper oil. And then simultaneously, this might just kick start, a, an EV transition that might, a, reduce our reliance on oil and, b, you know, eventually get more people to be using the grid and potentially bring down those those capacity payments. We did see reports coming out during this conflict as well where they talked about how the solar transition that Pakistan got, not led by the government but because of economic circumstances where almost 19 gigawatts of solar was deployed last year in Pakistan being the third largest deployment all across the world. How do you see a lot of these changes and shifts in terms of how Pakistan's overall energy economy is managed and how that might impact growth in the short to medium term? I think Pakistan needs to sort out its electricity issues.

We need to sort out. So the discos need to get privatized. उसके ऊपर काम हो रहा है. So I think we'll see distribution companies gradually get, privatized and we'll, once that happens, we'll see losses come down the same way that we saw. Losses come down in K Electric. So so that's going to have probably happen over the next ten years. So we, the second thing that we have to do, उसके ऊपर भी कुछ काम हुआ है and we stopped, we we've seen, we have reduced electricity prices for for industry, that was also a good decision. Losses from the residential segment should not be put on the industrial sector because that just makes it inefficient. So we have to figure out how to give cheaper electricity to industry especially when we have power plants available. So that that needs to be done, that is being done. So उसके ऊपर काम हो रहा है. The other thing that you asked about was oil prices. So I do, I don't think if there is sanction relief on Iran, Iran or anyone will be willing to give us below market price on oil? I mean I am not saying below market price but Iran for example LNG it's it's definitely cheaper to get Iranian gas than than LNG, right? That has had been a problem and that could potentially yeah. If there is sanctions relief that is a possibility but we will have to fund that pipeline. The pipeline at Iran's end is already made. We need to make our end. We will have to figure out a way to fund it. And then we'll also have to think if that sanctions relief is permanent because we still have to be ready for every situation. So I think,

but but There is cause for optimism but cautious optimism.

But if Iran comes online and if everyone starts to, there is going to be a lot of exploration activity in Pakistan over the next ten years. Either for mines and minerals or for oil and gas. This shock I think is going to push the government and companies to explore oil, gas, minerals everywhere in the world. So I feel like once this gets done, we'll probably see lower oil prices we had before the conflict, but that's going to take some time. But in the medium term, if things stay like this, and because a lot of electrification is also happening and demand growth might start tapering off, we might see lower oil prices and that is then going to counterbalance the EV revolution, in some because prices are going to be lower. So let's see what happens. I think let's say good to be cautiously optimistic.

Yeah yeah, absolutely. I'm gonna wrap this up. I know that you're rushing rushing down. Hope you have a great day, and I hope everybody in Pakistan has a great day. It was a good exciting announcement, I hope we can hopefully convert this into a long lasting peace for the region, and we get some something great out of that not just for Pakistan but for the entire region. युसुफ thank you so much for taking the time out and sharing all that insight.

Thank you मज़ा अमिल, thank you so much.

And for all of you guys let me know in the comment section below what are your thoughts on the current conflict particularly Pakistan's role in potentially creating this ceasefire and long term solution. What are your thoughts? How do you feel about it? Are you invested in the market? Obviously the same question I ask every time. Let me know in the comment section below. But, nonetheless, you are watching Thought Behind Things. Thank you so much for watching, and I'll see you in the next one.