Direct taxes on rich people proposed: Dr Ishrat sees 3-4 percent growth over next two

[LahoreEstate]

RECORDER REPORT
KARACHI (February 22 2009): Pakistan can manage to achieve 3 to 4 percent growth rate over next two years and would return to the long-term average of 5 percent after 2010. This was stated by former Governor of State Bank of Pakistan and Dean and Director Institute of Business Administration Dr Ishrat Hussain while addressing Pakistan Belgium Business Forum (PBBF) on "Survival of Pakistan's Economy" at a local hotel on Saturday.

The gathering was attended by Francis Widmir, Commercial Counsellor, Embassy of France in Pakistan and Head of Economic Department in Pakistan, Takreem-ul-Haque, Honorary Vice Consul Belgium, President PBBF Mohammad A Rajpar and members of PBBF.

Dr Hussain said Pakistan for a long time had achieved the rare distinction of having 5 percent per annum GDP growth rate, hence a pessimistic view of the alarmist 'experts', who are talking down the economy, was not justified, as the capitalist system entails boom and bust cycles alike.

Pakistan should change its traditional view of looking at the West for economic reforms, now Islamabad should look at the fast growing future economies of East like China, South Korea, Vietnam, etc, he added. He said though the short-term issues, such as power, water etc, were there but in the long-term Pakistan should learn from China and induct incentives for industrial production, innovation, education, culture of hard work, transparency in corporate working, etc.

Dwelling on the prospect, he said since July 2008, the government had taken tough decisions with subsidies being eliminated to reduce fiscal deficit, IMF programme has begun plus reduction in world oil and commodity prices were easing pressure on the economy. He said 2009 would be a tough year though.

The former SBP chief said the country's banking system had insulated from global liquidity crisis due to earlier reforms, whilst the central bank was injecting needed liquidity into the banking system.

Terming the tax ratio as "not enough", Dr Hussain said rich people needed to pay more and the emphasis should be on direct taxes instead of the indirect ones that affect the poor more. He said the recession-hit world growth was expected to be zero or negative over next two years with developed countries to be the most affected ones.

The economic recession would affect Pakistan's exports and investment inflows, but perhaps the demand would not be hurt as much since Pakistan was the producer of lower value goods.

Terming investment a must in energy supply to industrial, social and infrastructure sectors, Dr Hussain said Islamabad should diversify out of textiles into higher value addition activities, like engineering and manufactured goods. He said the current crisis was not first in the history of Pakistan, which had recovered well from previous ones, like in 1999.

The ex-SBP chief cited three reasons for the current crisis. First, the previous government had not responded in time to increase in global oil and commodity prices ie impact not passed on to consumers for political reasons, he said, adding that instead, government had borrowed Rs 600 billion from the SBP causing inflation and attacking on the exchange rate.

Secondly, he said political crisis and extended transition to new government left the economy without effective stewardship. Finally, the previous government had not planned for energy shortage despite good growth rates. This was a mistake (or policy failure) which had impaired current industrial production and future industrial investment.

Earlier, PBBF President Mohammad A Rajpar in his address of welcome highlighted various aspects of PBBF saying that the Forum was enjoying good reputation among the official and business circles. He said the 80-member Forum was promoting business ties and mutual understanding between the two friendly countries and was engaged in activities such as shipping and freight forwarding, textiles, oil and gas, manufacturing of building materials, cement and glass, etc.

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