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Navigating Towards A Brighter Future

Khaleej Times interviewed Zafar Masud, President and CEO, at Bank of Punjab. A seasoned banker and entrepreneur with a focus on development finance, with 27 years of proven track record of success and delivery, Masud talks about the path ahead for course-correcting the country’s macro-economic situation

What is your view of the macro-economic situation for 2023?

The year 2022 was a challenging one for Pakistan’s economy as political uncertainty and unstructured concessions extended earlier to support the growth, became a drain on fiscal account, and derailed post-Covid economic recovery. Consequently, the IMF programme remained suspended, leading to a flight of capital and erosion of investor confidence; reflected in the pricing of Euro bonds. The negative fallout of the global conflict exacerbated the on-going global commodity super cycle, which led to a sharp increase in import bill and sharp reduction in Pakistan’s foreign exchange reserves. Then once-in-a-lifetime natural disaster, i.e. the super floods of 2022 inflicted losses of around $30 billion to our fragile economy and directly impacted the livelihoods of more than 30 million citizens.

Clearly, Pakistan can no longer sustain policies that promote short-term growth through consumption-led spending. We need to learn from the examples of Singapore, China, Vietnam, Bangladesh and India, which were able to turn-around their economies within the last three decades through trade liberalisation and market-based reforms. Due to the current ongoing negotiations with IMF, the chances of default appear to have reduced, although the economy remains in a precarious situation.

The macroeconomic environment in 2023 remains difficult with prevailing political uncertainty and volatile global economic conditions. Inflation has spiraled to over 30 per cent, and central bank reserves have declined to less than one month of import cover. There are concerns over Pakistan’s ability to meet external debt repayments, with international rating agencies downgrading the sovereign ratings. GDP growth is projected to slow down to one per cent in FY2023.

The key to macroeconomic stability is the resumption of the $6.5 billion IMF programme. The Government has recently undertaken difficult measures to contain the fiscal and trade deficits. This includes new tax measures and a sharp reduction in subsidies. These corrective actions are having a positive impact with the trade deficit posting a sharp 33 per cent decline in the current fiscal year. The resumption of IMF programme will unlock critical external bilateral and multilateral financing needed to rebuild the reserves and restore market confidence.

Unlike the G20 countries, a relatively unleveraged consumer economy with such high interest rates, monetary tightening is overdone and damaging business: Your comments.

The central bank has increased policy rates aggressively to 20 per cent as a result of spiraling inflation. This will have a negative impact on private sector growth, while furthering the debt servicing costs of the government, which would in turn fuel inflation in our case, as opposed to the concept of containing it in the economies where the portion of private sector, particularly consumer, credit is in high proportion than public sector. We have been advocating that the central bank needs to review it’s inflation targeting mechanism; currently, it is chasing headline inflation and falling behind the curve. Instead, it should target core inflation and manage market expectations through more effective communication. This is the international best practice, particularly relevant in these trying times, and is used by the US Fed, which focuses on the core Personal Consumption Expenditure (PCE) index as the preferred measure to gauge inflation and for policy setting.

Why is it that last five years Pakistan has almost no major privatisation? Your opinion on how to take this forward.

The privatisation policy has stalled over the last decade since the 2008 global financial crisis. Weak investment climate combined with weak investment laws have meant that Pakistan has lagged behind in attracting foreign investment compared to other regional economies. As the Chairman of the Oil and Gas Development Company Limited (OGDCL), which is the largest of the 206 Public Sector Enterprise (PSE), in my view, privatisation is not a blanket solution. Most of PSEs are utility companies and one cannot get rid of them through an unstructured and unthought-through privatisation process; especially without taking care of proper pre-requisites, including making the whole privatisation framework for each private party’s selection criteria for each entity to be privatised, etc. For example, giving away a power utility to a private equity would be a disaster, both for the utility and for the PE company, as the objectives of two entities don’t align, and consequently, one of the two would suffer and pay the price. PSEs transformation to private entities will only raise new issues, if done in haste and without proper due diligence/ framework.

We must appreciate that country possesses weak regulators by and large, and there is a need to strengthen the regulators before thinking about privatising PSEs. We see the success of previous privatisation in banking industry, where the central bank acted as a strong regulator and ensured best practices that led to the turnaround of the weak state owned banks.

On a personal level, tell us how surviving the air crash has changed your approach to life and work.

The crash was an intense, almost out-of-body experience for me, and it galvanised my faith in God — I became far more resolute and faithful than I had ever been in my life, up until that point. What is clear to me, however, is that I must continue to do in the future what I was doing in the past, with reinvigorated commitment, a stronger resolve, and more faith, trust, and vigor.

I believe that prioritising empathy in management gives rise to a more merit-based approach. It entails that people are inherently good, and that effective managers trust in that goodness, and nurture it. It entails that you give people a chance to succeed, give them an enabling environment for them to deliver, and they will; that you give them the allowance to make mistakes, and to falter. Because if you cannot risk faltering, you can never run.

BOP has been at the forefront in resettling flood affectees. Please tell us about your initiatives and what has been achieved so far.

We need to start thinking about CSR differently. We shall not treat it as a ‘social burden or obligation or tax’, but it’s something which is important for our business, it’s positioning and more so for it’s future sustainable growth. The CSR shall embed in the main line of business and mesh with business relevance; then only it will be impactful.

As part of the Bank of Punjab’s most recent demonstration of commitment to CSR, in collaboration with social architect Yasmin Lari’s Heritage Foundation Pakistan (HFP), we are working to sustainably rehabilitate the flood affected regions across Pakistan, with initial undertaking to the inhabitants of Punnu village, in Mirpurkhas, Sindh, and Rojhan, in district Rajanpur, Punjab. BOP and HFP have committed to enable the provision of safe shelters (with flood and earthquake resilient properties), simple toilet facilities, clean drinking water, and earthen stoves.

This initiative is a representation not only of the bank’s strong culture of CSR, but also is relevant to our area of expertise (as BOP is a market leader in low-cost housing and extending micro-loans through our partners), and is in-line with our long-term objectives of near-universal financial inclusion, financial literacy, and the financial empowerment of women. In addition, our collaboration with HFP in Punnu and Rojhan is a manifestation of the bank’s commitment to advancing the Green Banking agenda — incentivising projects that are environmentally-friendly and sustainable.

Each shelter costs merely Rs. 50,000/- to construct. The financing extended by the Bank of Punjab for the construction of 100 shelters (plus 50 shared eco-toilets) in Punnu will be managed by the ‘Maa Madad Savings Committees’ of 25 local housewives as recyclable interest free financing (grants were refused by HFP) under an endowment fund arrangement. The committees are responsible for securing the repayment installments, as well as ensuring proper disbursement of financing. A similar arrangement has been devised in Rojhan, for financing and construction of shelters for 25 families, initially. HFP will provide monitoring and guidance to ensure smooth implementation.

These shelters are carbon neutral in their construction, using local materials — mud and bamboo — with key design feature that makes them resistant to climate related disaster events like flooding — shelters constructed in Punnu Village were able to withstand the force of the recent rainfall and flooding, and have continued to provide shelter to their inhabitants and others who have been rendered shelter-less. This is one CSR project that we are exceptionally proud of and have all the intentions of scaling it up in collaboration with micro-finance institutions, NGOs on the ground like HFP, and other funders in the CSR space to subsidise interest piece on the loans to women for which the bulk funding will be contributed by the BOP as it’s main line of business.