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Costly state-owned entities need to be privatized; Special incentives must be offered to investors

Interview with Dr Amjad Waheed — CFA, Chief Executive Officer, NBP Fullerton Asset Management Limited (NAFA)

Profile

Dr Amjad Waheed is the CEO of NBP Fullerton Asset Management Ltd (NAFA). His organization is presently managing Rs 100 billion of investors’ funds in conventional and Islamic mutual and pension funds. NAFA is the fastest growing mutual fund company in Pakistan and their funds have been among the best performing in the country.

Dr Amjad Waheed holds a doctorate in Finance & Investments and has published articles in top finance journals of the world.

PAGE: HOW WOULD YOU COMMENT ON THE BUDGET DEFICIT AND HOW COULD BUDGET DEFICIT BE FINANCED?

DR AMJAD WAHEED: The tax collection at the federal level is about 12% of GDP and at the provincial level it is about 1% of the economic size of the provinces. The tax base has to be broadened by taxing all sources of income whether it emanates from salary, agriculture, real estate, stock market, corporate business, or the service sector.

Presently the agriculture sector is hardly taxes in Pakistan, service sector is under-taxed, with the major burden of taxation falling on the documented corporate sector and the salaried class. Government should privatize or reforms the state-owned entities which is costing the tax payers Rs 600 billion per annum. Following the above steps, the part that has to be financed will be manageable, and can be done by issuing government bonds/sukuks, bank borrowing and National Savings Schemes.

PAGE: YOUR VIEWS ON BALANCE OF PAYMENT:

DR AMJAD WAHEED: The government has neither adjusted the currency not provided fiscal benefits to exporters. The input costs, labor costs, and utility expenses are much higher in Pakistan relative to our competing countries like India and Bangladesh. Resultantly our exports have declined from US$ 25 billion to US$ 20 billion in the last three years, whereas our imports are on the rise. The recent exports package announced by the government will have a positive impact, but it will take a couple of years. Balance of payment is a major threat to Pakistan. Let’s hope the foreign direct investment increases as a result of CPEC to offset the rising current account deficit.

PAGE: YOUR VIEWS ON OIL IMPORT BILL AND REMITTANCES DURING THE CURRENT FISCAL YEAR:

DR AMJAD WAHEED: With the oil prices rising again, and remittances declining a bit, the current account deficit is expected to rise to over US$ 7 billion this fiscal year relative to around US$2.5 billion last fiscal year. We may see some currency adjustment in the next one year.

PAGE: WHAT MUST BE DONE FOR DEBT SERVICING AND FOREIGN LOANS?

DR AMJAD WAHEED: The government needs to learn to live within its means, and budget deficit should be restricted to under 5% of GDP. This step, in addition to broadening the tax base will reduce the need for excessive borrowing.

PAGE: GIVE YOUR VIEWS ON EFFORTS OF GOVERNMENT FOR THE PROMOTION OF EXPORTS?

DR AMJAD WAHEED: The recent export package is a good step by the government to promote exports. Government should also consider offering lower utility costs to exporters as export proceeds are a much better avenue of foreign exchange reserves than foreign borrowing. The government should also facilitate setting up special export processing zones where Pakistani, Chinese and other textile companies can set up their factories. Special incentives should be offered to investors setting up businesses in these zones.

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