LAHORE, Aug 23: IMF has advised Pakistan to increase its tax-GDP ratio to 20 per cent without raising the current tax rates by broadening the base and doing away with the exemptions.

Speaking to civil servants here at the Pakistan Administrative Staff College on Friday, Paul Chabrier, special consultant to the managing director of the IMF, said the existing tax-GDP ratio of 14 per cent was undesirable in view of the country’s structure of expenditure.

The country’s tax system needs to be reviewed and reformed. The revenue generation has (historically) been much less than other countries that has led to huge budgetary deficits, he said. “With it you cannot do miracles. The deficit needs to be narrowed to prevent future borrowings from the external as well as domestic sources because it leads to growth in expensive debt as had happened during the last decade.”

Chabrier said political instability and low revenue collection were two major factors that had adversely affected the Pakistani economy during the 1990s which he termed as a lost decade.

He said he was puzzled to see the country’s economy going down in the 1990s after a fairly good performance between the 1960s to mid 1980s. He said the frequent changes in governments as well as “difficult regional situation” that put great demand on the small revenue resources were among other factors that had caused damage to the economy. He said the “continuity of policies is essential for restoring the investors’ confidence in a country.”

Chabrier praised the Musharraf regime’s economic management, saying the present government was able to secure substantial debt relief from Paris Club and raise concessionary external finances because of its good economic performance during the first 10 months of taking over power. It were the economic policies and their application and not 9/11 that won Pakistan finances from IMF and other donors. However, he said, 9/11 and Pakistan’s role in Afghanistan may have helped it secure some concessions in the form of removal of sanctions by the US and Japan and increased textile quota from the EU.

While some fundamental and important elements are already put in place, he said, there are many other issues that need to be tackled to attract foreign investment in this country. He said foreign investors are not attracted solely by the debt relief secured by it or its foreign exchange reserves, there are certain factors (regional peace, etc) beyond the economic sphere which influence their decisions to invest in any particular country.

The IMF executive emphasized the need for continuing the current economic reforms and policies beyond the October polls to gain the confidence of markets. The economic management must not be allowed to be taken hostage by politics, he added. Besides, he said, Pakistan needs to improve and invest more in the social sector. Moreover, it should move towards less government and more private sector.