International Monetary Fund (IMF) Session at IBA Karachi
Mr Tokhir Mirzoev, Resident Representative International Monetary Fund (IMF) for Pakistan, visited IBA City Campus for an interactive session with the faculty and scholars of Economics to discuss economic and political reform in Pakistan.
Comparing the economic indicators of Pakistan to China, India and Bangladesh, Mr Mirzoev hinted that Pakistani growth (4%, 4.2% & expected 4.5% for 2014, 2015 and 2016 respectively) is lagging behind that of its close neighbours and the global trend. However, he believed it was promising that Pakistan's Current Account (CA) balances were improving due to steep growth in foreign remittances and due to the global decline in oil prices. This positive trend has offset the negative growth of exports which plagues the country.
Mr Mirzoev stressed that Pakistan needs to work diligently to stimulate growth and "catch-up" with similar standing growing economies. For this to happen, two key variables which include i) Exports, which is almost 9% of the GDP and ii) Tax Revenue, which is 11% of the GDP, must improve.
He lightly touched on the political slogans that are chanted in Pakistan for better education, health care and social assistance, the government needs to ramp up it's tax collection mechanism and bring more people under the umbrella of taxpayer status. He also said that Four-key Structural Reforms are priority: a) Energy production, b) Widening of the tax net, c) Restructuring public enterprises/ privatisation and d) Improving the business climate.
Following his descriptive presentation, the floor was opened for questioning and a scholar put forward the concern of paying colossal interest to IMF loans, to which Mr Mirzoev responded that IMF loans have much lower interest rate than other commercial institutions, so in reality the $5 Billion loan that Pakistan has received yields a $68 Million interest only.
While answering a question about Pakistani Exports and their lack of demand in the global market, Mr Mirzoev stated that the issues ailing the sector include products not being competitive in the global market, lack of diversification and value addition in products and a myopic view of the market only targeting a few countries leaving most markets unexplored.
When asked regarding an observation targeting political will regarding the IMF reforms and the fact that the government is being run by the bureaucrats and not the politicians, Mr Mirzoev responded that the idea is to continue with the reforms and carry on progressing. Turkey and Pakistan suffered energy crisis around the same time in 2004-05, Turkey implemented the IMF reforms and since hasn't looked back!
In reply to an IBA faculty member's question that increasing taxes increase the cost of doing business and the goods and services become less competitive, the IMF stance is that everyone should pay taxes who are evading taxes so far. IMF does not expect things to change overnight but gradually the tax culture has to improve by creating awareness.
Some of the suggestions by the IMF to stimulate growth are: to give more incentives to producers and less to the consumers, by raising the cost of staying outside the tax net and raising the benefits for the citizens who are a part of the tax net.
Upon a query about our monetary policy, the IMF is of the view that the transparency of the central bank (State bank of Pakistan) is improving. Inflation should be targeted through interest rate – the transmission mechanism of the monetary policy. Here fiscal policy reforms will play a role, in that the government borrowing will go down in favour of the private sector.
Closing the event Mr Mirzoev indicated that government expenditure is low in Pakistan compared to other countries as more resources are required through tax reforms. Financial inclusion is a recourse but people have found ways to avoid taxes though they use banks for their financial transactions.
The Institute of Business Administration continues to invite and host renowned economic and business thinkers of Pakistan and the world offering them a forum to share their views and bring professionals in contact with respected faculty and knowledge-thirsty students to create a learning experience.