Views from the market

December 31, 2018

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Q. What is the one area in your sector where you feel excessive government intervention is hampering growth? How would you like it to address the issue?

Richard Morin
CEO - Pakistan Stock Exchange

From Pakistan Stock Exchange’s point of view, I cannot say government intervention is hampering growth. In fact, we have a very constructive relationship with Ministry of Finance and the Securities and Exchange Commission of Pakistan and are working together to develop Pakistan’s capital market.

That said, tax policy is hampering capital market development. That is why we are lobbying for a level tax playing field between different investments.

Currently, real estate effectively receives better tax treatment than stocks which leads to excessive investment in real estate and misallocation of capital in the economy.

We also believe NSS distorts the markets and is in need of reform.

Privatisation of SOEs would also help develop the stock market and attract retail investors.

Finally, I believe the GOP needs to commit to the development of the bond market; we are willing to work with finance ministry on that front as well.


Aizaz Sheikh
CEO - Kohat Cement

The government needs to support the cement sector as it can earn precious foreign exchange through export, but policy changes at different levels are hurting the export potential of the industry.

Exports to Afghanistan through the Torkhum border have decreased sharply and besides other reasons, security checks and delays in customs at the border are also hurting exports. Security checks are necessary but the government should take steps for the quick processing of export consignments.

Government inaction is also hampering the growth of the cement sector owing to smuggling of Iranian cement into the country which continues unabated, hurting not only the local industry but government revenues as well. The government is losing almost Rs180 per bag in terms of duties and taxes which the local industry pays.

Even legal import of Iranian cement should not be allowed until Pakistan Standards and Quality Control Authority certifies the quality of cement being imported.

We also urge the government to eliminate federal excise duty on cement as it is not a luxury item.


Salim Raza
Former governor SBP

It’s a tale of two cities.

On the one hand, the government distorts the allocation of national credit by using banks as the dominant (80 per cent) funding source for its T-Bills and PIB debt. This takes up about 50pc of a bank’s loanable funds. Another 10-15pc is lent by banks to government entities or against sovereign guarantees. The share of the private sector is then restricted to one-third of bank lending.

On the other hand, the government has allowed its development lending institutions — SME bank, ZTBL, and the Housing bank — to wither on the vine. Together, their lending amounts to less than 5pc of total private credit. This is in sharp contrast to what happens in most emerging markets today.

In some, this happens through a banking system that is, in the majority, government owned (e.g. China, India, Vietnam); in others, through public-sector development banks, with more than a 40pc share in national credit (eg Brazil, Turkey); and in many, through directed lending. Pakistan has none of these three types of support.

The government must widen it sources for raising debt. Or investment will, at best continue to stagnate.


Gohar Ejaz
Group Leader — Aptma

Pakistan’s current account deficit has surged to $19 billion, primarily due to a trade deficit of $41bn last fiscal year. There’s only one way of controlling the current account deficit and that is by increasing exports and curtailing imports through tariff and non-tariff barriers.

The textile and clothing industry offers a great opportunity to double our exports to $46bn in five years.

For this the government needs to intervene to a) invest in cotton crop to double the output to 22-23 million bales by increasing per hectare yield; b) set-up a committee for reviving sick textile units that can immediately enhance exports by $3bn; c) release sales tax and other outstanding refunds of Rs102bn to exporters to ease pressure on their liquidity; d) create an investment friendly environment and provide low-cost credit for fresh investment in value-added textiles to boost exports and generate jobs.

We have cost-push inflation this year because of around 25 per cent currency devaluation. This cannot be controlled by raising interest rates. Rates must be kept down at 5pc to encourage investment as well as create savings of Rs1,000bn for the government on interest payments.

Those savings could be spent on public health and education services.


Hassan Bakshi
Chairman - ABAD

  1. Improvement in building by laws and regulations.

  2. Introduction of technology for fast track, one window, online approvals of building plans thereby minimising human contact. All approvals must be given within thirty days.

  3. Reducing the number of NOCs for issuing construction permit.

  4. Introduction of fixed income tax for the industry.

  5. Disposal of government land through transparent auction and apointment of individuals at market based salaries for a fixed tenure.

  6. Development of infrastructure in order to encourage both horizontal and vertical construction.

  7. Improvement in tenancy foreclosure laws to encourage banks finance the industry.

  8. Availability of bank financing for builders and developers and availability of long-term financing for buyers of housing units.

  9. Import of duty free construction machinery and technology and removal of regulatory duty on import of M/s Steel Bars and tiles.

  10. Utilisation of the fees and taxes collected from builders and developers for improvement of infrastructure and removal of the sector from service industry.

  11. Decreasing the cost of transferring property and making the transfer compulsory at actual transaction value.


Khalid Mahmood
CEO - Getz Pharma

We have had no price increase in the last 11 years. As a result, there hasn’t been a lot of investment to grow pharma exports.

The global pharma market is worth $1.4 trillion. Even small countries like Jordan export about $800 billion worth of pharma products. Pakistan’s total pharma exports are less than $200 million. There are 700 pharma companies in Pakistan.

We’ve had 25pc devaluation, 30pc rise in the electricity cost and 35pc increase in the gas cost. So the mindset of the government is that the only good industry is a sick industry. Its officials seem to think that it is not good for the people if a company is generating a profit. The opposite is true as Pakistan does not have even the essential drugs listed by the WHO. This means low-cost molecules are not available to the poor. As a result, Pakistan’s infant and maternal mortality rates are twice those of Bangladesh. The number of stunted children up to the age of five is the highest in the world.

The high-end medicines for cancer or products that cure Parkinson’s disease and Alzheimer’s are also unavailable in the regulated market. But they are all available in the grey market. The government should follow the Indian or Bangladeshi pricing model. Its government regulates essential 200 drugs. It leaves the pricing of the rest of medicines to market forces.

Published in Dawn, The Business and Finance Weekly, December 31st, 2018