RR Immediate Reform Agenda Imf and Beyond 1

IMMEDIATE
REFORM
Agenda
IMF & Beyond
Nadeem Ul Haque
Ahmed Waqar Qasim
The authors are grateful to:
Abedullah Anjum, Afia Malik, Ahmed Fraz, Azwar
Muhammad Aslam, Faisal Ali, Mahmood Khalid, Muhammad
Zeeshan, Usman Qadir & Durre Nayab for their inputs to
this document.
All rights reserved. No part of this publication may be reproduced stored in a retrieval system or
transmitted in any form or by any means-electroninc, mechincal, photocopying, recording or
otherwise-without prior permission of the author and or the Pakistan Institute of Development
Economics, Islamabad.
c Pakistan Institute of Development Economics, April, 2024.

IMMEDIATE REFORM AGENDA
IMF & BEYOND
Designer: Mohsin Ali, Pakistan Institute of Development Economics, (PIDE). Islamabad.

Table of Contents
Suggested modernization
01 Near Default 26 of regulatory framework
Fiscal Consolidation is
04 Entering the 24th IMF program 31 more than chasing taxes
10 A deeper reform is required 43 State-captured real estate
We require higher than 8% Way Forward:Efficiently

14 sustained growth for thefollowing 47 utilization of the State-captured
reasons real estate
To achieve an 8% growth rate The economy had been opened

17 the investment requirement is 53 in the early 2000s We must
28.8% open it again
Time to become a serious Agriculture market
60 102
market economy needs to be liberalized
61 Energy market 110 Decision required and impacts
76 Real estate market
Capitalism requires
82 a shareholder economy
Branding:Where innovation and value

93 addition happen
97 Banking Sector
The economy is near default and likely
to remain so, even in the IMF scenario
Over the next 3 – 4 years, the IMF says there will be a
huge financing gap, probably larger than our reserves
01
Towards default:
Pakistan's external financial requirements exceed USD 120 billion over the next 5 years
Gross external financing requirement (USD billion)
33.7
25.5 22.2 22.8 24.9 24.6 24.9

23.4
22.2
2019 2020 2021 2022 2023 2024 2025 2026 2027
Source: [2019-2023] The Pakistan Economic Survey – [2024-2027] The IMF projections are in red, and we believe they are optimistic
02
Unfavorable ongoing circumstances:
External financing requirement far exceeds the gross reserves
Gross external financing requirements (% of reserves)
506.7
354.2 343.9
273.6
191.8 170.8
128.3 145.6 126.4
2019 2020 2021 2022 2023 2024 2025 2026 2027
Source: [2019-2023] The Pakistan Economic Survey – [2024-2027] The IMF projections are in red
03
Entering the 24th IMF program
with adjustment still a
distant dream
Growth is likely to remain well below what is required
by our young and over-indebted economy
04
Excess capacity increasing as growth remains slow
Output Gap (%)
10
-5
-10
-15
2010
2014
2012
2013
2015
2016
2018
2019
2017
2011
2020
2022
2023
2021
2004
2000
2002
2003
2005
2006
2007
2008
2009
2001
Source: IMF Report, 2024
05
Growth is lackluster and sporadic The IMF projections, though,
optimistic remain well below the growth required
GDP Growth
7.7
7.5
5.6 5.8
6.1 4.6 5.0
5.6
4.2 5.0 3.6 3.8 4.1 4.6
5.5
3.7 4.6 4.2 5.0
4.1 3.1
3.5 2.4 2.6 3.7
0.4 0.3
-0.9
2010
2014
2012
2013
2015
2016
2017
2018
2019
2011
2020
2022
2024
2025
2026
2023
2027
2021
2000
2004
2002
2003
2005
2006
2007
2008
2009
2001
06
Deficits with optimistic projections remain high Will this
adjustment happen or like the past programs remain elusive
GDP Growth
7.9 7.9
7.1
5.8 6.1
4.7 4.1
4.2
3.8 3.6 3.8
2.5 2.5 2.5 2.5 2.6
1.6
0.8
2019 2020 2021 2022 2023 2024 2025 2026 2027

Fiscal Deficit (% of GDP) Current Account Deficit (% of GDP)
07
Reserves: Inflation:
Expected to remain insufficient Will pose additional challenges
Reserves (USD billion) Inflation
22.8
28.2
21.2
19.1 21.3
?
17.3
16.2
12.2 12.2
9.8 10.7 10
8.9 7.7
7.3 6.8 6.5 6.5
2019 2020 2021 2022 2023 2024 2025 2026 2027 2019 2020 2021 2022 2023 2024 2025 2026 2027
08
Investment is always been far lower than required and expected
to remain below needs even with an IMF program
Investment (% of GDP)
17 17 16.9 16.6
15.5 15.7
14.8 14.5 13.6
2019 2020 2021 2022 2023 2024 2025 2026 2027
09
With this IMF program, a deeper
reform is required to increase
investment and growth
10
We recognize We recommend
complementary actions with
Restructuring Debt will be difficult
and time-consuming the IMF program to:
IMF is a Necessity Enhance growth
Increase exports
Improve productivity
Increase investment
Grow outward-looking
listed corporates
Develop brands and domestic

market
11
Our goals are to increase:
Productivity
The economy's ability to create value

and generate wealth
Investment
Resources (such as money, effort, or time)

being used to generate future returns
12
Productivity & investment are on a long-term declining trend:
Must be reversed!
6 30
5
Total Factor Productivity
25
4
20
3
GFCF
2 15
1
10
0
5
-1
-2 0
1975
1977
1979
1985
1989
1983
1987
1995
1999
2019
1981
1993
1997
2013
2015
2017
1991
2011
2023
2021
2009
2003
2005
2007
2001
TFP GFCF (% of GDP)
Source: PIDE’s calculations
13
We require higher than 8%
sustained growth for the
following reasons
14
Youth employment requires more than sustained 8% growth
for 30 years
4.0
3.0
Millions
2.0
1.0
0.0
Increase in Working Ages New jobs needed
The working age population (columns) increases by 4 million a year

With current labor force participation rates (line) we would require a minimum 8% growth
With increased labor force participation, especially of females, a higher growth rate is required
15
To reduce its debt burden, Pakistan needs growth of 7% to 8%
120
100
Growth is equivalent to
80 the Real Interest Rate
(Debt to GDP Ratio)
60
Growth Rate is 4.5
40
20
Growth Rate is 10
0
16
To achieve an 8% growth rate
the investment requirement is
28.8%
(Based on current ICOR)
17
To create large, exporting, listed, outward-looking, professionally-run
corporations
Modernize regulatory framework Incentivize exports
Simplified, stable, and low tax Promote listed firms

framework
End import substitution Develop brands
18
Permissions (regulations) are a huge impediment
If investment is to be a top priority, we need:
Huge Digital
deregulation governance and
regulation
Efficient and
functional markets
19
The picture of regulations: Time and money wasted getting
permissions
122 regulatory bodies just under the Federal Government (PIDE Sludge Audits)
Cost more than 50 % of GDP (PIDE Sludge Audits)
Sector-Wise Regulatory Mapping - 2023
Real Estate Activities
Manufacturing
Information & Communication
Hotels & Restaurants
Education
Finance & Insurance Registrations

Licenses
Health & Socia Work
Certificates
Transport & Storage Other Permissions
Wholesale & Retail Trade
Construction
Mining & Quarrying
Agriculture
0 50 100 150 200 250
Source: PIDE’s calculations based on PRMI repository
20
What is needed: Rules, not permissions
with digitization
Permissions costs time and resources

Documentation costs are huge (direct and
opportunity costs)
Require…
Clear rules, digitization, and market liberalization
End the bureaucratic desire for permissions and
papers
21
To end “Permissionistan”, which
Pakistan has become
Options
Piecemeal will not work
Regulatory guillotine is tried and tested
Examples: Hungary, Mexico, South Korea, UAE, etc.
India achieved this in 1991, and

Dubai is still doing it
22
“Regulatory Guillotine” strategy must
be adopted fast
Cabinet Decision: All Registrations, Licenses,
Certificates, and Other Permissions (RLCOs)
removed in 3 months, except for prohibited
activities
In that period, fresh RLCOs should be present-

ed to the cabinet with a clear cost-benefit
analysis
After three months only newly approved

permissions, if any, will prevail
23
Control the flow of new regulations
Need Pakistani version of

OMB (Office of Management and Budget), USA
Paperwork Reduction Act, 1980, USA
Regulatory Impact Analysis (RIA) must be mandatory for all future regulations based on the
following considerations:
What is the problem you are trying to solve?
Why is government action needed?
What policy options are you considering?
What is the likely cost-benefit of each option?
Who did you consult and how did you incorporate their feedback?
What is the best option from those you have considered?
How will you implement and evaluate your chosen option?
Cabinet and Parliament must ask for RIAs everywhere before allowing any regulation
Current regulations must be subjected to RIA on regular basis
24
Actions required:
1 Regulatory Guillotine
2 New Act for ensuring good regulation
No rules can be proposed without a proper cost-benefit

analysis, given to the public and the Parliament/Cabinet
The Planning Commission should take the lead role in

regulatory modernization
It should be doing regular RIAs in all sectors and all fresh
regulatory proposals must be presented to the CDWP with
RIA before going to the cabinet.
25
Suggested modernization
of regulatory framework could
lead to large benefits
26
Impact of the “Regulatory Guillotine”
4.37
4.16
3.96
2.18 2.29
2.08
1.60 1.68
1.52
1st Year Impact 2nd year impact 3rd Year Impact

Investment (% of GDP) New Employment (million) Growth (%)
Source: PIDE’s calculations based on input-output and forward linkages
27
Impact of the “Regulatory Guillotine” on Investment (% of GDP)
18.5 18.6 18.6
1.52 1.60 1.68
17.00 17.00 16.90
2024 2025 2026

Investment Projected - IMF Investment Addition After PIDE's Suggested Reform
28
Impact of the “Regulatory Guillotine” on job creation
75.6 75.7
75.5
2.08 2.18 2.29
73.4 73.4 73.4
2024 2025 2026

Employment Projected - IMF Employment Addition After PIDE's Suggested Reform
29
Impact of the “Regulatory Guillotine” on economic growth
9.4
8.8
5.1
4.37
4.16
3.96
4.6 5
4.2
2024 2025 2026

Growth Projected - IMF Growth Addition After PIDE's Suggested Reform
30
Fiscal Consolidation is
more than chasing taxes
Extremely important to look at the expenditure side and
the use of assets
31
We have chased taxes for 23 programs unsuccessfully
Our tax system is cumbersome, distortionary, and volatile creating huge uncertainty in the economy
Government expenditures and balance sheets are always ignored to our extreme detriment
32
Documentation is scary and costly:
1 - Businesses do not corporatize to escape the burden of documentation and random tax changes
2 - Documentation can be made easy and simple. Taxation should be simple and stable
Manufacturing: Percentage of Firms Indentifying Tax Rates as Manufacturing: Percentage of Firms Indentifying Tax
a Major Constraint Administration as a Major Constraint
2007 2013 2022

2007 2013 2022
Services: Percentage of Firms Identifying Tax as a Major Constraint Services: Percentage of Firms Indentifying Tax Administration as a
Major Constraint
Source: World Bank Enterprise Survey Pakistan Bangladesh
2007 2013 2022 2007 2013 2022
33
Tax simplification and policy certainty
Urgent priority should be to simplify taxes this budget in a revenue-neutral manner

Hold stable for 10 years – no new taxes in every budget
Uncertainty and instability in taxation have:

Driven investment underground (PIDE- State of Commerce Report)
Stunted firm growth
Inhibited corporatization and listing
34
Tax proposals
Income tax regime

Uniform tax rate across all sources of income
Agriculture Income – losses carried forward and adjusted
Presumptive tax regime elimination
Tax on turnover, Alternative Corporate Tax should be withdrawn
Uniform taxes on AOP, sole proprietor, and corporations
Inter-corporate dividend income, selling assets less than a year treated as normal income,
5 years adjusted with inflation and no tax beyond 5 years
Eliminate withholding taxes and move to Advance Income Tax
35
Tax proposals
General Sales Tax Excise Duty
The sales tax system needs to be Excise Duty should be further

harmonized/equalized across increased on tobacco and bever-
goods and services. ages, or any other products
Early implementation of POS declared harmful to health and
through outsourcing – 6 months environment
VAT mode, with low and same rate
for goods and services
36
Simplifying taxes will bring gains
2024 2025 2026
1. Customs reforms
Customs revenue (PKR billion) 20.00 25 30
Exports growth (%) 0.01 0.01 0.01
GDP growth (%) 0.03 0.03 0.03
Tax collection (PKR billion) 40.00 50 60.00

60
2. Domestic tax reforms
Sales tax (PKR billion) 624.59 687.05 755.7
Income tax (PKR billion) 196.34 215.90

215.9 237.5
Federal excise tax (PKR billion) 20.00 22.00

22 22.00
24.2
GDP growth (%) .01-.02

0.01- 0.02 0.01 0.01
Ease of doing business X X X
Total tax increase (PKR billion) 900.94 1,000.03

1000.03 1,107.54
1107.54
37
Tax exemptions and administrative reforms
Stop all kinds of concessionary financing and discrimination between businesses through fiscal
incentives
Tax administration – automated, streamlined minimizing human interaction
Abolish the “filer” - “non-filers” distinction
Abolish “FBR Rates” for property valuations
38
Administrative reforms are a must!
Tax administration should be automated and streamlined
minimizing human interaction
Let a responsible and accountable tech-savvy group
emerge to collect revenue
Let an independent service well-versed in technology
and modern auditing techniques run the place.
Halt the audit of tax returns for first-time filers for the
next five years
39
Bold decisions are needed in this budget!
Tax simplification
Administrative changes, especially digitization
Documentation through markets means
Tax policy consistency for 10 years
FBR to focus on administrative changes and efficiency
No harassment
40
IMF program
looks only at the
income statement
Immense Value
lies in poor
utilization of
assets
41
Government assets built but not utilized for high returns
Examples are:
Roads Convention center Stadiums Auditoriums Real estate
Office space
42
A major example
State-captured real estate
An underutilized resource
Most valuable asset that the state has
Inhibiting city’s downtown growth everywhere in Pakistan
Contributing to sprawl
Preventing construction, development, and growth
Huge impediment to investment
43
Yellow marks the public sector housing in the most valuable areas of Islamabad
There is much more if we add un-needed office and leisure buildings
44
17,471 government houses for government employees in
Islamabad – occupied 1,325 acres of land
Area occupied by Public Houses (Acres) Public Servants Houses Across Sectors (Numbers)
G-7 438 G-7 4,557
G-6 317
G-6 4,006
G-9 3,106
F-6 155
G-10 1,865
G-9 137
I-9 1,392
G-8 110 F-6 793
G-10 93 G-11 760

I-8 464
I-9 41
G-8 451
G-11 19
F-7 30
I-8 16
45
The market value of only the land in its present state, excluding the structure with current zoning and
building regulations, is a staggering PKR 2,278.6 billion.
769.2
Values in Billion (PKR)
450.1
395.5
202.6 227.4
143.2
25.4 27.5 37.9
G-11 I-8 I-9 G-10 G-8 G-9 G-7 F-6 G-6
46
Way Forward:
Efficiently utilization
of the State-captured real estate
47
Monetization: Market-based house rent
Higest Average Median Lowest
BPS 228.1 89.6 66.4 30.5
1&2 68,444 26,889 19,933 9,157
3 to 6 114,073 44,815 33,221 15,261
7 to 10 114,073 44,815 33,221 15,261
11 to 13 136,888 53778 39,866 18,313
14 to 16 159,703 62,741 46,510 21,365
17 to 18 250,961 98,594 73,087 33,574
19 296,591 116,520 86,376 39,678
20 410,664 161,335 119,597 54,939
21 501,923 197,187 146,174 67,148
22 570,367 224,076 166,107 76,304
48
Annual monetization cost
At Highest Rental Value At Median Rental Value At Average Rental Value

Rs. 741 billion Rs. 135.9 billion Rs. 222.7 billion
49
Rezoning and presenting market-based high-rise mixed-use
development with proper public and green spaces could:
Bring in investment of more than USD 58.8 billion (Rs. 16,433 billion)
Generate more than 351,000 job opportunities
Will add 44.4 million sq. ft of space to commercial activities along with other spaces
Generate rental income of more than Rs. 446.8 billion annually
50
If this is done right…
For an annual cost of PKR 741 billion
USD 59 billion could be invested, with an annual rental
value of PKR 447 billion and 350,000 jobs along with
445 million commercial space
This will generate tax revenue from PKR 160 to 300
billion
On a public-private partnership the revenue could be
much larger
For this to be done, considerable planning and thought
must go into it
51
Asset register and utilization
Exercise similar to the state-captured land should be
done for all underutilized state-owned assets
Taxing people to finance underutilized assets should be
carefully reviewed
Need a high-level professional commission to develop an
asset register along with mechanisms for asset utilization
Public-private partnership could play a big role here
52
The economy had been
opened in the early 2000s
We must open it again
IMF should not accept RDs and ACDs for revenue purposes
Tariff system must be kept clean and open
IMF should also not accept an appreciated exchange rate based on tariffs and
non-tariff measures
53
How we closed the economy – for revenue gain
Regulatory duties
Additional custom duties
GST on imports
Federal excise duties
Non-tariff barriers
Exchange rate regulations
Profit repatriation
L/C control
All this amounts to protecting an overvalued exchange rate
Finally, impacts exports through both exchange rate overvaluation
and restrictions on imported inputs
54
The long-term trend of exports is lagging behind imports:
Unsustainable trade balance scenario
120
100
80
Billion USD
60
40
20
2011
2013
2015
2017
2019
1989
1993
1995
1997
1999
1983
1985
1987
1991
1969
1981
1963
1965
1967
1961
1971
1977
1979
1973
1975
2001
2003
2005
2009
2021
2023
2025
2027
2007
-20
Exports Imports
55
Growth of exports and imports
Imports and exports are interdependent

Import substitution has made all KSE-100 firms inward-looking – this MUST CHANGE
Export must become a national priority
Trade policy must be pro-exports instead of anti-export as currently
All our large firms must become exporters
We must have multi-billion dollar firms – not our current stunted firms
56
Import substitution policy has failed
The ratio of Imported Intermediate Inputs to Total Imports
0.20
0.15
Ratio
0.10
0.05
0.00
2000 2022
Import substitution policy followed since independence has proven ineffective

Localization is a disaster – as all economic experience has always suggested
57
Tariff rationalization is needed to remove anti-export bias
Cascading tariff structure creating an

Tariff rationalization and tax collection
anti-export bias
(PKR billion)
Solution:
60
50 Remove multiple tariff rates on the

40 same item, which incentivizes
mis-invoicing
30 Remove Additional and Regulatory
25
duties; leads to smuggling
20
End import substitution – phase out
protection, SROs
Phased over three years
2024 2025 2026 In the first phase, bring most tariff
Customs Revenue Tax Collection rates within 5 slabs i.e., 0, 5, 10, 15 and
20
58
Decisions
Remove additional custom and regulatory duties
SROs-based exemption should be removed in three years
Remove tariff cascading
Export subsidies must be linked with export performance
Tax incentives for corporate exporters, e.g., 1– 3% corporate
income tax concession for every USD 100 million value of export
59
Time to become a
serious market economy
Currently, markets are seriously over-regulated, over-bureaucratized, and stunted in Pakistan
Most markets lack transparency, information, and often are controlled by bureaucrats
Transactions – speedy, informed, and efficient lead to investment and GDP growth
60
Energy market
Decades of huge losses
Decades of attempting to make a market
Decades of governance failure
Let’s make it a decentralized competent and professionally regulated and managed

market now
61
Power sector crisis
Electricity losses are not merely a theft (Kunda) issue
Lack of management and planning (capacity)
Over centralized decision making
62
Electricity Circular Debt- structural issue (PKR billion)
FY2022 FY2023 Q1-2024
Payable to Power Producer 1351 1434 1750

GENCO Payable to Fuel Suppliers 101 111 96
Amount Parker in PHL 800 765 765
Total 2,252 2,310 2,611
Breakups
Budgeted but Unreleased Subsidies -12
Unclaimed Subsidies -133 70
Interest Charges (PHL+IPP) 134 143 45
Pending Generation Cost (QTA+FCA) 414 250 110
Non-Payment by KE 107 -53 43
DISCO Losses 133* 160 77*
Under Recoveries 180 236 165
Prior Year Adjustments -285 -447 -147
* % T&D Losses not accounted for in Tariffs. Total T&D losses include technical losses (Theft roughly 50 to
60%)
63
Important circularity: tariff increases circular debt, in turn, circular
debt leads to tariff increase
2,280 2,310
2,253
Receivables (FY2023) 2,150
Federal: PKR 89.9 billion (5.1%) 1,927
1,828
Provincial: PKR 145.6 billion (5.9%)
1,680
Private: PKR 1691.2 billion (89%)
1,496
1,406 1,375
1,145
1,088
992
896
754 684
633 730
513 649 656
471 450 489
411
341
266
111 145 101
27 34 53 30 81
-25
DISCO Receivables Circular Debt
64
Decisions – improved governance
Independent, empowered Power Commission – comprising only technocrats, under the

supervision of Parliament or its assigned Committee* with limited time (3 to 5 years) and a clear
agenda to clean up the mess of the power sector
Independent boards – no political appointments, no bureaucratic interference
Boards appoint CEOs on merit on performance bonuses
Decentralization – Principal Accounting Officers must be the CEOs of entities DISCO, etc.
DISCOs responsible for administrative and financial matters
Clear targets and accountability
Unbundle DISCOs – horizontally for better administration; and vertically for ensuring retail compe-
tition**
*Conflict of interest and merit will be a serious concern
**Strengthen Field Offices, not Head offices
65
Decisions – commercialization & corporatization
Compulsory disclosure of all energy companies on the stock market

Limit of 5% share for each shareholder
Institutional investors (pension funds), not private conglomerates
Shareholders must have the right to appoint directors
Management contracts should be actively considered
66
Decisions – policy
Rationalize power entities – too many*, e.g., do we need PPIB, PITC, CPPA, PPMC, etc.
Independent Regulatory Authority (with explicit legal and regulatory powers) – no political
interference
Complete moratorium on IPPs, new capacity under CTBCM
Energy transition through net-metering and off-grid solutions
Revisit – uniform tariff across the country**
*No coordination and in certain cases overlapping functions, impeding progress

**It acts as a disincentive for the DISCO to improve and grow
67
Decisions – new tariff design
Revise uniform tariff policy – tariffs based on the actual cost of services for all consumer
categories*
No slabs – flat linear tariff
No tariff-based subsidy or cross-subsidy – direct cash transfer for addressing poverty
*More than 74% of the consumers are charged a tariff below the average national tariff, these are not necessarily poor
and lower-middle-income households;
25% of people (50 million) don't have access to grid electricity, and the demand for about 90 million is under-met;
Installation of two to three meters, or illegal practices to remain in lower slabs
68
Decisions – tariff simplification and reduction
No cross-subsidy*
No revenue-based load shedding**
Better load management planning***
Electricity bill – not be used as an FBR Agent****
*For FY2023, the average base tariff was PKR 24.82, industry due to cross-subsidy paid PKR 60/ kWh in peak hours
With a 1% increase in energy tariffs, investment declined by 0.33% in firms, and total sales revenue went down by 0.51%
in firms
**Revenue-based load shedding more than 3000 MW, for FY2023, capacity cost in average base tariff was
PKR15.01/kWh
***in FY2023, PKR 46.6bn was paid to power plants for Part Load Adjustment Charges, which increased fuel cost adjust-
ments for end-consumers
****Besides income tax for non-filers, the consumer is paying PKR 9.67/kWh including PKR3.23/kWh financial cost
surcharge
69
Gas crisis
Indigenous gas resources going down, T&D assets expanding*
SSGCL and SNGPL – financial returns linked to T&D assets and not
their operational efficiency**
Gas allocation – political decision
Gas pricing – not based on cost of service
Over-regulated, centralized decision-making
*From FY2019 to FY2023, gas production declined by 17% and T&D assets goes
up by 11%
** In FY2023, T&D losses in the gas system were equivalent to 41% of LNG
imports, translating to about US$1.54 billion
70
Gas Debt Building up – due to cost price differential and
managerial inefficiency (PKR Trillion)
2.9
2.1
1.6
0.535
0.35
20 20 20 21 20 22 20 23 S EP - 23
Source: IMF and Petroleum Division
71
Decision – develop market for gas
De-regulate gas sector
Market-based pricing, no subsidy or cross-subsidy
Gas allocation based on economic value addition*
Single regulator (upstream, midstream, and downstream) with explicit legal and regulatory
powers – no political interference
*Gas supply cost to households much higher than the gas supply cost to the power sector or
industry
In peak winters, 60% of gas is used for space and water heating and 40% for cooking. Gas-based appliances are highly
energy-intensive. The efficiency level of gas-based geysers is less than 30%. Only substituting heating demand can
generate 5,042 GWh of power
72
Decision – restructure gas companies
Unbundle gas companies – multi-seller distribution model to
ensure competition
Abolish ROA formula*
Adopt a business model
*16.6% return on assets
73
LNG imports
Government sole player - no competition
Procedural delays in import decisions - PPRA Rules
No accurate demand projections
Weak global bargaining position
Two floating storage and regasification units with government
guarantees of take-or-pay
SNGPL and SSGCL pipelines (monopoly) used to transport LNG
74
Decision – LNG Market
Allowing third-party access to LNG imports
Private sector (including industry) to import directly from the spot market
Virtual pipeline to increase competition and decrease dependence on gas companies
Allow entry into LNG transmission market
75
Real estate market:
Hyped, inefficiently regulated,
limitedinformation, and
least transparent
An easy market to organize
Huge investment potential
Can drive growth
76
Let us define real estate properly
Real estate is large construction, developing city centers and commercial areas – and not at all
mean “Plotistan or Housing Societies”
Urgent paradigm shift required

Prioritize deregulation of the city’s downtown to facilitate large investments
Set city limits with flexible building regulations (especially heights) to stop sprawl
77
Real estate: Most talked about
Currently, fragmented market, insider trading (qabza)

Market organization – big payoff, possible PKR 300 billion revenue gain
Artificial administered prices – DC rate and FBR valuation
Multiple land rates for taxation purposes act as a barrier to allowing the real estate market to
develop.
Information hiding has been incentivized through regulation
Real estate agents – wield considerable influence
File trading has become a predominant transaction due to regulatory negligence
Zoning rule leading to urban sprawl and further market segmentation
78
Real estate market
Losing potential revenue and creating black money by fixing the FBR rate and not allowing the market
to work
Artificial Administered Price Yields Low Taxes

(Evidence from Rawalpindi)
Potential Revenue Realized FBR Tax Gap
PKR 30.76 billion PKR 18.96 billion PKR 11.79 billion
FBR valuation is 65% of Tax Gap from 50 cities

the Market PKR 300.5 billion
79
Decisions:
Establish credible online multiple-listing and an auction market. The state has the preemptive right to
buy at 150% of the transaction price
Multiple Online Listing Model
Step 1 Step 2 Step 3 Step 4

Contract Agreement Contract Listing Online Bidding Contract of Sale
Buyer & Seller Property should be Different potential Certificate
agreed on a listed in the buyers can bid Managing Authority
price against a exchange forum for issue the certificate
propert 7 days
80
Decisions
Abolish FBR valuation and DC rates

File trading must be regulated by SECP – file is a security
Regulation must be separated from the real estate business
Organize the real estate brokerage business
Review and update rental laws
Zoning must be relaxed substantially for vertical and mixed-use development in all cities
81
Capitalism requires
a shareholder economy
Increased supply of listed companies will attract local and foreign savings and deemphasize
investment in plots
82
Current state of the stock market
The stock market shrinking, thin with few IPOs

PIDE reported that 31 families (Mehboob ul Haq – 22 in 1967) dominate KSE-100
Several government entities form a large part of the KSE-100 at about 12%.
The multinational sector and foreign holding companies constitute about 28%.
Local companies, even after 60 years of financial market development, remain a small part
of the market at about 30%.
NIT continues to own 7% of the market with very little oversight
83
Market Capitalization (% to GDP)
122%
105%
94%
64%
8%
2022
Pakistan China Malaysia India Thailand
84
Stunted family-owned firms
will not lead to high growth
85
The policy should be to develop large exporting listed corporations
Our companies are very small as well as inward-looking family-owned businesses that are not listed
on the stock exchange
Current policies need to change if we want large, exporting, listed, outward-looking,
professionally-run corporations driving the economy
86
Stunted Firms in Pakistan
(Market Capitalization of top ten listed firms – USD billion)
Indian Companies Pakistani Companies

$211.76
$162.98
$152.69 $2.11
$1.37 $1.36
$1.24 $1.20
$83.61
$76.00 $74.31 $1.09
$73.12 $71.32 $68.94 $0.95
$64.45
$0.83 $0.81
$0.76
RELIANCE TATA HDFC BANK ICICI BANK LIMITED INFOSYS LIMITED HINDUSTAN Bharti Airtel ITC LIMITED STATE BANK OF Life Insurance Oil & Gas Colgate Palmolive Nestle Pakistan Ltd. Pakistan Petroleum Mari Petroleum Meezan Bank Pakistan Tobacco Lucky Cement Ltd. United Bank Ltd. MCB Bank Ltd.
INDUSTRIES LTD CONSULTANCY LIMITED UNILEVER LIMITED INDIA Corporation of India Development (Pak) Ltd. Ltd. Company Ltd. Consolidated
SERVICES LTD. Company Ltd.
Chiniese Companies Malaysian Companies

$23.45
$429.37
$18.02
$297.91
$13.73
$13.03
$12.43
$223.89 $11.37
$201.21 $10.54
$183.48 $181.19 $178.24 $176.83 $8.64 $8.48
$150.71 $148.88 $7.44
Tencent Kweichow Moutai ICBC ( Industrial PDD Holdings Alibaba Group PetroChina China Mobile Agricultural Bank of Bank of China China Construction Malayan Banking Public Bank Berhad CIMB Group Holdings Tenaga Nasional PETRONAS Chemicals IHH Healthcare Digi.com Berhad Press Metal Bhd Hong Leong Bank Bhd Petronas Gas Bhd
and Commercial Holding Company China Bank Corporation Berhad Berhad Berhad Group Berhad Berhad
Bank of China)
Source: https://www.value.today/
87
Corporate governance matters
Pakistani companies are very small with low growth

We need large listed and exporting multi-billion dollars corporates
Majority of corporations in Pakistan are family-owned, small, and not listed
Board members are predominantly male
Board members are well-connected
They are drawn from a fairly narrow group
88
Snapshot of exporting firms listed at PSX - 2022
Total firms listed at PSX 53 100%

Exporting firms 171 32%
More than 50% export sales to total sales 40 8%
More than USD 10,000 exports 76 44%
Percentage of exports sales of listed firms to total exports 0.02%
Total exports sales by listed firms at PSX USD 5,517,621
Minimum exports USD 7,960
Maximum exports USD 358,133
Average exports USD 32,267
89
Stock market is important
Global Evidence
1% increase in per capita 0.4% increase in per

corporate assets holding capita income
PIDE’s Estimates
1% increase in per capita 0.3% increase in per

corporate assets holding capita income
90
Decisions
Incentivize listing: tax incentive of 1– 3% in corporate income tax for each 10% listed on the
stock exchange for 5 –10 years
Soften corporate takeovers: the market to determine the takeover price
Allow holding companies to operate and develop a market presence
Avoid double taxation
91
Decisions
Privatization: Priority through the stock market

Triple benefit – develop market, transparency, and benefit spread
Can be done 10% or less at a time to determine market price
Monopoly – limit individual ownership to 5% or pension funds and mutual funds own 10%
Privatize NIT
92
Branding:
Where innovation and value
addition happen
Branding happens in well-developed value chains, especially in a well-functioning
retail market
Retail business in Pakistan has been seriously stunted by zoning and over-regulated cities
93
Brands are a result of market development
Stage Type Characteristics Upstream Infrastructure & Legal Needs
First Small shops along Limited convenience, high margin, low Small manufacturers
well-traveled routes turnover, limited inventory, high search
costs, no consumer protection
Second Supermarkets and Improvements in convenience, margin, Craft and small

shopping clusters turnover, inventory, and search costs over manufacture
especially markets of the first phase as more competition
a similar good, e.g., develops but still market participants lack
cloth market, the financial strength to truly benefit
diamond market, etc. consumers
Third Department stores Offering convenient one-stop shopping, Distribution, wholesale,

brand names that invest in quality and and warehouse activity.
consumer protection. Low search costs as Professional
departmental store maintains large management
inventories
94
Stage Type Characteristics Upstream Infrastructure & Legal Needs
Fourth Chains of stores Bringing the department store’s Growth in distribution,

reliability and consumer benefits wholesale, and warehouse
close to all consumers. Large activity. An open economy
turnovers with margins dropping supplies this network.
Supporting legal framework for
long-distance management and
contracting
Fifth Convenience stores Big companies with deep pockets Supporting financial markets
and discount stores use their buying power and and an open economy that
marketing ability to do a high allows a global reach.
volume, high turnover, low margin Warehouse and distribution
business. Consumer welfare companies are large partners
enhanced
Sixth Shopping malls to Increased convenience makes Development of institutional

house the above shopping a pleasant experience investors who invest in large
activities physical investments such as
shopping malls and financial
and legal systems that support
this form of a specialized
multi-contracting business
95
Decisions
Branding & domestic markets

Prioritize flexible zoning rules to allow large
showrooms and department store space
Value brand – exports related incentives/

concessions
For Every 100 million in branded exports,
1-3% further corporate income tax conces-
sion for 10 years
96
Banking Sector
“…banks are the happiest engines that ever were invented for creating economic growth”
Alexander Hamilton (1781)
97
Fundamental issues
Limited diversity
Regulatory hurdles & weak legal infrastructure
High levels of non-performing loans
Government borrowing crowding out credit to private
sector
Large informal sector hindering access to formal financing
98
Domestic credit to 1981-1990 1991-2000
Thailand 126
the private sector

Singapore 81
Malaysia 80 Malaysia 124
China 75 China 94
has been lowest and Thailand

Chile 51
59 Singapore
South Africa 55
91
growing lower in Brazil

South Africa 46
51 Brazil
Korea, Rep.
54
53
Pakistan Korea, Rep. 44 Chile 50
Qatar 32 Indonesia 46
Colombia 31 Qatar 39
27 Egypt, Arab Rep. 36
Egypt, Arab Rep.
25 Philippines 32
Pakistan
24 Oman 31
India
24 Colombia 30
Argentina
24 India 24
Indonesia
20 Pakistan 23
Philippines
20 Saudi Arabia 22
Sri Lanka
20 Sri Lanka 22
Oman
18 Nepal 21
Turkiye
16 Mexico 20
Saudi Arabia
14 Argentina 20
Mexico
12 Turkiye 19
Bangladesh
10 Peru 19
Nepal
Bangladesh 18
Peru 10
2001-2010 2011-2020
Korea, Rep. 120 China 150

China 115 Korea, Rep. 138
Malaysia 111 Singapore 120
Singapore 97 Malaysia 120
Thailand 92 Thailand 112
Chile 66 Chile 80
South Africa 62 Qatar 71
Egypt, Arab Rep. 48 Nepal 64
India 41 Brazil 63
Qatar 37 South Africa 61
Brazil 37 Turkiye 60
Oman 37 Oman 55
Nepal 37 India 51
Saudi Arabia 35 Colombia 45
Sri Lanka 31 Saudi Arabia 45
Bangladesh 31 Peru 42
Philippines 30 Philippines 41
Colombia 26 Bangladesh 41
Turkiye 24 Sri Lanka 39
Peru 24 Indonesia 32
Indonesia 23 Egypt, Arab Rep. 27
Pakistan 20 Mexico 24
Mexico 15 Pakistan 15
Source: PIDE’s calculations Argentina 13 Argentina 14
99
Finance-Growth nexus
A developed banking sector –robust predictor of contemporaneous and future long-run economic growth
14
12
GDP per capita in 000 US$
10 TKY MLY
RUS
MEX
8 CHN
BRZ
PRU COL
6 THD
SAF
4 IDS
EGY
PHL
2 VNM
IND
PAK BGD
0
0 50 100 150 200
Credit to GDP ratio in %
Source: State Bank of Pakistan
100
Decisions
Develop nonbank financial entities

Soften entry into banking
Allow local, regional, and thrift institutions to
develop
Develop a foreign exchange market
Expand the network of primary dealers
101
Agriculture market
needs to be liberalized
Markets need to develop all along the value chain
No bureaucratic control
Storage, input, seed, and commodities markets will all develop with less control, more
processes to set-up branding, information, and trading platforms
102
Seed industry
Bureaucratic and lengthy procedures for the approval of a variety

Slows seed business and promotes low-quality seeds
Regulations impose unnecessary costs on seed production and sale
Mandatory certification (which has no market value) causes disadvantages to consumers
because firms transfer seed certification costs to farmers
The private sector is ready to lead the process, but hesitant to share germplasm for
government approval due to a conflict of interest
The private sector views seed testing at FSC&RD as time-consuming and having no value
in the market
103
Seed industry: cost of regulations
Currently only 37% of high-quality seeds are available for all crops.
Inefficiency in the seed market leads to small farmers without high-quality seed.
The cumulative potential gain – PKR 1,722 billion – if high-quality seed is accessible
104
Commodity operations (Wheat) must be discontinued
Phased out in 3 years

Interventions in case of emergencies (to be defined in legislation) requiring parliamentary
approval
Open up the market (allow import and export)

Cartelization and hoarding is a myth in an open economy
Public storage from commodity operation is costly and wasteful

Well known that this has a hidden debt of PKR 1 trillion
Sovereign guarantees are given to banks for buying wheat at very high rates
105
Support price for wheat
Evidence has shown that the support price mechanism has failed
Prices not stabilized nor lower-income consumers helped (only flour mills and retailers' benefit)
Procurement of wheat has led to low investment and R&D. thus yield stagnated between 28 to 30
mound/acre over the past two decades. Growth remains around 1.7% over 42 years
106
Wheat: cost of regulations
Total Procurement Cost (money lent from banks) = Rs. 645.48 billion
Cost of Interest on Lending = Rs. 88.80 billion
Cost of Procurement = Rs. 46.37 billion (@Rs.7/kg)
Value of wastage = Rs. 64.58 billion
Total Cost (rental cost of warehouses is not included yet) = 199.75 billion
Institutional expenditure engaged in the process of procuring
PASSCO budget = Rs.700 million
Food Department Budget in Punjab = Rs.273 billion
Circular Debt = 680 Billion in Punjab Only
107
Decisions
Discontinue support price

Abolish commodity operations
Discontinue seed registration and testing, let the market work based on brands
Establish new rules for truth in labeling and setting up seed companies
Stop seed-by-seed registration
Clear penalties for malfeasance
Encourage private storage by offering tax incentives for 5 years on certified storage
Government should get out of storage business
108
Our Targets: with proposed interventions could be more ambitious
than the IMF
Official reserves 4 - 5 months of Imports in 3 years

Financing gap to be reduced to zero in 3 years
Inflation down to 10% in 18 months
Fiscal deficit reduction by 4 %age points by the end of 3 years
Primary balance decreases steadily to 1%
109
Decision required and impacts
110
Impact
Reform - 1
Time Line Annual investment Annual employment GDP Growth
growth creation (million)
Regulatory Guillotine 6 Months

1.60% 2.08 3.9 - 4.3%
New Act for ensuring good regulation 6 Months
Reform - 2 Revenue Impact (PKR billion)
Time Line Gain Loss
Tax simplification and ease of documentation 2 Months 850 -

- 300
Remove regulatory duty, remove additional tariff 2 Months
600 -
Remove exemptions 2 Months 50 -
Tariff rationalization [new slabs 0, 5, 10 15, 20] 2 Months
opening up 2 Months Net increase 1,200
111
Reform - 3
Time Line Impact
RAPID export growth

Outward looking firms
Realistic exchange rate policy 2 Months
Profit repatriation 2 Months
Innovation & technology adoption
No bans on imports 2 Months
Stop import substitution 1 to 3 years
Brand promotion
Gradual removal of localization 1 to 3 years
Tax concession on export volume (1% on corporate income tax) 2 Months
Efficient foreign exchange market
Tax concession on branded exports (1% against USD 100 million export) 2 Months
Reform - 4
Time Line Impact
Real Estate Market

Efficient Real Estate Market
Abolish DC & FBR valuation rates 2 Months
Multiple listing & auctions 2 Months
Generate addition revenue PKR 300 billion
Flexible zoning rules 2 Months
Organizing the real estate market 2 Months
112
Reform - 5
Time Line Impact
Energy Market
Empowered Power Commission [ no PAO ] 1 Months
T&D loss reduce 50%
Electricity
Decentralization, PAO DISCO 2 Months

Unbundle DISCO + DISCO governance + Automatic metering/billing 1 to 3 year
Receivable reduce to PKR 361 billion within 2 years
Tariff redesign 2 Months
Third - party access RLNG imports 1 Month
Circular debt will evaporate in 2 years
Market - based allocation policy 1 Month
Revise ROA formula 2 Months
Market - based gas pricing (wellhead, consumer end) 2 Months
Unbundle gas companies 6 Months
Gas
Single regulatory 2 Months
Reform - 6
Time Line Impact
Stock Market
Incentivize listing (1-3% concession on corporate income tax) 2 Months Efficient Stock Market
Privatization should be through Mtock Market 4 Months Emergence of Large Corporation
Soften take overs 2 Months Direct impact on growth
113
Reform - 7
Time Line Impact
Banking Sector
Develop non bank financial entities 1 year Reduction of informal economy
Soften entry into banking 2 Months Financial Diversification
Expand the network of primary dealers 4 Months Direct impact on growth
Reform - 8
Time Line Impact
Agriculture Market
Develop seed brands 4 Months Potential Gain PKR 1,722 billion
Discontinue commodities operations 1 year Reduce fiscal cost, reduce circular debt
Eliminate support price 2 Months Movement towards high value crops
Reform - 9
Time Line Impact
State Capital Real Estate Bringin new investment USD 58.8 billion in Islamabad alone
Create more than 350,000 new jobs, 445 million sq. ft. commercial
Monetization at Market Prices 2 Months space with PKR 447 billion. This will generate tax revenue from PKR
160 to 300 billion
114
This document is based on
115
PIDEpk
PIDE official
pide Islamabad
pide Islamabad
PIDEpk

RR Immediate Reform Agenda Imf and Beyond 1

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IMMEDIATE

c Pakistan Institute of Development Economics, April, 2024.

Designer: Mohsin Ali, Pakistan Institute of Development Economics, (PIDE). Islamabad.

10 A deeper reform is required 43 State-captured real estate

We require higher than 8% Way Forward:Eﬃciently

To achieve an 8% growth rate The economy had been opened

61 Energy market 110 Decision required and impacts

76 Real estate market

Branding:Where innovation and value

Gross external financing requirement (USD billion)

25.5 22.2 22.8 24.9 24.6 24.9

2019 2020 2021 2022 2023 2024 2025 2026 2027

Gross external financing requirements (% of reserves)

2019 2020 2021 2022 2023 2024 2025 2026 2027

Output Gap (%)

Source: IMF Report, 2024

2019 2020 2021 2022 2023 2024 2025 2026 2027

Reserves (USD billion) Inflation

2019 2020 2021 2022 2023 2024 2025 2026 2027

IMF is a Necessity Enhance growth

Develop brands and domestic

The economy's ability to create value

Resources (such as money, eﬀort, or time)

TFP GFCF (% of GDP)

Source: PIDE’s calculations

Increase in Working Ages New jobs needed

The working age population (columns) increases by 4 million a year

Source: PIDE’s calculations

Source: PIDE’s calculations

Source: PIDE’s calculations

Modernize regulatory framework Incentivize exports

Simpliﬁed, stable, and low tax Promote listed ﬁrms

End import substitution Develop brands

Sector-Wise Regulatory Mapping - 2023

Real Estate Activities

Information & Communication

Hotels & Restaurants

Finance & Insurance Registrations

0 50 100 150 200 250

Source: PIDE’s calculations based on PRMI repository

Permissions costs time and resources

India achieved this in 1991, and

In that period, fresh RLCOs should be present-

After three months only newly approved

Need Pakistani version of

2 New Act for ensuring good regulation

No rules can be proposed without a proper cost-beneﬁt

The Planning Commission should take the lead role in

1st Year Impact 2nd year impact 3rd Year Impact

Source: PIDE’s calculations based on input-output and forward linkages

18.5 18.6 18.6

1.52 1.60 1.68

17.00 17.00 16.90

2024 2025 2026

Source: PIDE’s calculations based on input-output and forward linkages

2.08 2.18 2.29

73.4 73.4 73.4

2024 2025 2026

Source: PIDE’s calculations based on input-output and forward linkages

2024 2025 2026

Source: PIDE’s calculations based on input-output and forward linkages

2007 2013 2022

Source: World Bank Enterprise Survey Pakistan Bangladesh