Miftah Ismail is a Pakistani political economist who served as the Federal Minister of Finance from April 2022 to September 2022. He had previously served in the same office, from April 2018 to May 2018 in Khaqan Abbasi’s cabinet. Prior to that, he served as the Advisor on Finance, Revenue and Economic Affairs, chairman of the Pakistan Board of Investment and an economist with the International Monetary Fund. Today, he has joined us in the show for an interview
Rohail Amjad: Do you think that the solution to the current Pakistani economic crisis is a technocratic government?
Miftah Ismal: Typically, technocrats or those who do a technocratic government in Pakistan either as caretakers for few months or martial law in don’t even in live Pakistan. They just come to fly in with the suitcases and fly out the day they are no longer the ministers. They have no idea how the Pakistani economy works or how the Pakistani business works. They might be good economists but when you are not connected to Pakistan, that’s not particularly a robust way to form caretaker setups. What you require now in Pakistan are very hard choices and I think its best to be done with political leadership and mandate from the people. It is difficult for me to see a technocratic government being formed.
Rohail Amjad: You served as the Minister of Finance, Revenue, and Economic Affairs from 2017 to 2018 and in 2022. What were some of the biggest challenges you faced in this role, and how did you work to address them?
Miftah Ismal: The biggest challenge which I faced as a minister this time was to get the IMF back. Previously, in 2018 when I was finance minister for five months, the biggest challenge at that time was the burgeoning current account deficit because was pegged dollar at an unsustainably high rate and for the first time started the process of devaluation. Not everyone working with me understood the undervaluation, but we did what we could and within a very short period of time we gave a budget and the largest amnesty which collected the most funds. So, we were able to do a few things within a short period of time.
Rohail Amjad: What were the basis on which you were sacked from the post of Finance Minister? You recently said in an interview that the talks with IMF had been delayed, which is why the country is facing this crisis. What would you have done if you were still the finance minister?
Miftah Ismal: I was fired because I was making hard choices which the country really required and there were voices within the coalition especially Pakistan Muslim League N who were not willing to make hard decisions despite of being wanting to be in the government or there were some other interests and that’s why I was sacked. If I was at the helm of affairs I would have definitely started the 9th review process in October and would not have broken the agreement I had made with the IMF and would have stood with that.
Rohail Amjad: Pakistan has struggled with economic growth in recent years, with high inflation, a widening trade deficit, and a growing debt burden. What do you see as the key reasons for these issues, and what measures would you recommend to address them?
Miftah Ismal: The biggest reason for federal government deficit is that we have a very low tax to GDP ratio. We collect about 9%-11% tax to GDP and only the federal government collects tax, the provinces hardly collect even 1% of the GDP and the local levels collect nothing. The provinces get 60% of the federal revenue, 57.5% is mandated by the NFC award, then another 1% and Sindh gets 2/3 of the divisible pool. So that comes to about 59% and then you have to give money to Azad Kashmir, Gilgit Baltistan and Islamabad etc. So, we end up giving 62-63% of the tax collected to the provinces and the federal government then runs a very large deficit as we don’t have the money to finance the deficit except for printing of rupee. Budget deficit is then financed by international borrowing which obviously creates a current account deficit. So the issue in Pakistan is that we have a twin deficit and I would also say that Pakistan has a fundamentally incompetent policy over the years, not just economic policy but also governance policy. For instance, the idea of pegging the dollar to an artificial rate is one of the most “ruining” policies, that’s the reason our exports have gone down from 15%-16% of GDP to less than 9% of GDP today.
Rohail Amjad: The current government has expressed a commitment to increasing revenue collection and cracking down on tax evasion. What is your view on the effectiveness of these measures, and what more needs to be done to improve tax compliance in Pakistan?
Miftah Ismal: Under the budgetary system we have, even if we were to collect twice as much as you today i.e PKR 7500bln to PKR 15000bln but because of PKR 15000bln we will give PKR 9000bln to the provinces and the federation would only be left with PKR6000bln, we will run a budget deficit. We really need to curtail expenditures, all expenditures of the federal government should remain under the rate of inflation so that as % of GDP rate keep decreasing, also we need to restructure our NFC award. Not to weaken the 18th amendment, not to weaken the provincial authority in fact to increase provincial authority by giving areas where they can tax as we have seen in India, China and elsewhere the local governments are more effective in collecting the revenue. It’s about time we tax property, we tax agriculture that is mandated to the provinces. It’s about time, the provinces start collecting taxes and we need to reduce the overall fiscal deficit in Pakistan
Rohail Amjad: Pakistan has long struggled with energy shortages, which have had a negative impact on the economy. What measures would you recommend to address this issue, and how can Pakistan move towards a more sustainable and reliable energy system?
Miftah Ismal: As far as energy issues are concerned we have had circular debt in power sector for the last twenty years in every type of government either be it democratic, hybrid or martial law etc. All governments have failed to control the circular debt, its partly because of the incompetence but mostly its because of the ownership structure and Pakistani government has no private sector business running. The government should privatize the electricity distribution companies and get rid of them and then thereby efficiencies will be brought in. As we stand today, we produce expensive electricity although its an efficient generating system that we have but the transmission and distribution system is not efficient and we need to have privatization and intelligent regulation so that the final consumers are saved and are not just at the mercy of monopoly of distribution companies. So intelligent regulation is a must but we must privatize all power companies right now.
Rohail Amjad: There has been some debate in Pakistan around the role of international institutions like the IMF in shaping economic policy. What is your view on this, and how can Pakistan balance the need for external support with the need to maintain economic sovereignty?
Miftah Ismal: As long as Pakistan keep going to IMF, we will not be able to truly grow. In order to avoid going to the IMF we have to make hard choices but our political leaders and policymakers are not able make hard choices and we keep delaying important decisions which gets us into trouble and that’s when we have to go to the lender of last resort which then obviously imposes conditions which are not very easy to implement but it is our fault that we end up there unlike other proud intelligently governed nations who could manage their affairs without going to the ICU of economic conditions or without getting a “supervising Nanny” who looks after our economic policy or guides it, we should be able to do it ourselves but for that we need to be able to get commercial borrowing and need to run a rational economic policy
Rohail Amjad: Finally, what advice would you give to young people who are interested in pursuing a career in economics and public policy? What skills and knowledge are most important for success in this field?
Miftah Ismal: I think economics is an imperial social science itself as economists now have tools through which they can talk very intelligently and persuasively about political science, sociology etc. Gary Becker a Nobel prize winner in economics has done incredible work in sociology and then there are other economists who have worked in political science. Political economy is a field that economists can talk about. Economics is an imperial science, so I would recommend young people to initially get very good skills in mathematics, calculus, and linear algebra and then learn economics. Once you learn economics, public policy will naturally come, public policy, of course, is important and you need to exactly what area you need to focus on, but basic economic tools are required to conduct an economic policy. Economics, recently has also got a lot of benefit from psychology and a lot of behavioural phycology and some of the economic assumptions that economists have been making about rational decision-making has become under pressure and that’s all for the good as economics is the richer science because of behavioural economics
