- Driving economic growth and social welfare sectors like exports, banking, IT, agriculture, pharmaceuticals, education and energy likely to benefit
Interview with Mohammad Iqbal Ghori — former president, ICMAP; former CFO, FESCO and former DG Finance, PEPCO
Profile:
With a distinguished career exceeding three decades, Mohammad Iqbal Ghori has made significant contributions both to the public and private sectors of Pakistan, marking the commencement of his impactful journey in the early 1990s. His notable tenure in public sector regulatory bodies, especially his transformative leadership at Faisalabad Electric Supply Company Limited (FESCO) and his subsequent role as Director General of Performance Monitoring at Pakistan Electric Power Company (PEPCO), catalysed substantial improvements in energy regulation.
As the former President of the Institute of Cost and Management Accountants of Pakistan (ICMAP), Ghori was instrumental in driving the institution’s contributions to the management and accounting fields, leading critical committees and advocating for significant regulatory reforms. His proposal for establishing an independent Audit Oversight Board or Financial Reporting Council (FRC) underscores his dedication to enhancing audit quality and financial reporting standards in Pakistan. Furthermore, Ghori’s commitment to bridging the gap between industry and academia underscores the necessity of equipping professionals with the requisite knowledge, skills, innovation, and commitment, advocating for strategic partnerships that foster economic growth and development. His career is a testament to his unwavering dedication to improving Pakistan’s financial and regulatory frameworks and his active role in education and advocacy for industry standards and reforms.
Professional Experience:
Sadaqat Limited, 2015 – present
- Director of Finance & Strategy (2018 – present)
- Director of Strategic Planning (2015-18)
Led strategic initiatives, significantly impacting operations in key global markets.
Faisalabad Electricity Supply Company Limited (FESCO), 2011-15; 2018
- Chief Financial Officer/Finance Director
Enhanced financial systems for operational efficiency and profitability.
Pakistan Electric Power Company (PEPCO), 2007-2011
- Director General Corporate Finance & Director Performance Monitoring
Steered financial oversight and strategic planning for organizational growth.
Nasim Carpets (Private) Ltd & Others, 1990-2007
Roles in finance and management, contributing to financial optimization and growth.
Qualifications:
PURC: Public Utility Regulatory Course, University of Florida, USA
FCMA: Fellow Member of the Institute of Cost & Management Accountants of Pakistan
FPFA, FAIA (UK): Fellow of the Association of International Accountants, UK
MS: NCBA&E, Lahore
B.Com: Hailey College of Commerce, Punjab University, Lahore
Training:
- Certified Director, Directors Training Programme approved by SECP.
- Public Utility Regulation Course, PURC University of Florida, USA (Best Participant).
- Senior Management Course, WAPDA Staff College (Secured First Position).
- SARI/USAID Energy Workshop on Rate makes and Tariff Setting.
- Training on Regulatory Financial Model by World Bank/SAFIR.
- Workshop on Procurement Conducted by World Bank.
- Workshop on Financial Management of Projects by World Bank.
- Presentation Skills for Managers PIMS.
- How do Effective Managers Organize Themselves.
- Financial Modeling ICMAP.
- How to develop an effective Business Plan.
- Workshop on Income Tax and Sales Tax.
Papers presented/published:
- Corporate governance for public sector enterprises – World Bank, SECP and ICMAP conference at Lahore.
- ‘How to make public sector into profitable entities’ at the South Asian Federation of Accountants (SAFA) Conference
- Implementation of integrated reporting in electricity company – CAPA Conference 2012 Sri Lanka.
- The myth of electricity tariff, published in Management Accountant Journal.
- Regulation – Aligning of public interest with private behaviour.
- Why electricity prices are increasing in Pakistan.
- Transformation of non-performing public sector into profitable units.
- Time management.
- Positive thinking can change your life.
- How to prepare an effective business plan.
- Development of internal control.
- Electric utility needed to implement integrated reporting.
- Multi-dimensional role of management accountants in resolving present power crisis in Pakistan.
- Advantages of cost audit.
- Business regulatory reforms and cost of doing business: – A case study of SAARC countries.
- Unlearning to learn.
- Role of management accountant in a complex and competitive business environment.
- Audit mantra in Pakistan and need for financial reporting council.
- Cost accounting records rules of the textile industry.
- Autonomous or informed BODs with particular reference to public sector enterprises (PSEs).
- The economics of electricity pricing and costing in SAARC countries.
- Key responsibilities entrusted to accountants in the Companies Acts and Legislations.
- Pakistani and Chinese banking sector — readiness for CPEC and comparison of non-performing loans.
- The case for mandatory cost audit in the pharmaceutical industry of Pakistan.
- A sample study of two identical pharma companies in Pakistan and India to determine variance in the share of expenses and difference in marketing strategy.
- Role of management accountants in business profit maximisation through better cost management and control.
Published in newspapers:
- Widen the spectrum of audit (Dawn)
- Myth of independent PSE directors (Dawn)
- Regulating the regulators (Dawn)
- Need for financial reporting council (Business Recorder)
- Accounting professionals: Public interest obligations (Business Recorder)
- Flawed audit oversight board in Pakistan (Express Tribune)
- Vague law on corporate governance needs redrafting (Express Tribune)
Pakistan & Gulf Economist had a conversation with Mohammad Iqbal Ghori, FCMA, about the Federal Budget 2024-25. The excerpts are as follows:
The Federal Budget for the fiscal year 2024-25, recently unveiled by the Finance Minister, presents a strategic roadmap aimed at stabilising the economy, promoting growth, and enhancing social equity. This comprehensive analysis delves into the budget’s impacts on various sectors, its broader social implications, and its alignment with the IMF program requirements.
Implications for the export sector:
The export sector stands to gain significantly from the budget’s provisions, though some measures may pose challenges. Key measures include reduced tariffs on raw materials and machinery, which are vital for lowering production costs and enhancing international competitiveness. Special Economic Zones (SEZs) will benefit from enhanced support and tax benefits, attracting foreign investment and fostering export-oriented industrial growth. Improvements in the Export Facilitation Scheme 2021 will streamline processes and minimise bureaucratic hurdles, facilitating smoother operations for exporters.
Export targets and savings:
The government aims to increase exports by 10 per cen t, targeting $35 billion for FY 2024-25. Specific reductions on textile machinery and raw materials are expected to save the industry approximately Rs5 billion annually. Despite these incentives, several challenges could hinder export growth.
Challenges in the export sector:
The introduction of a normal tax regime for the export sector, replacing the previously favourable tax treatments, could increase the tax burden on exporters, reducing their competitiveness. The government’s move to minimize the EFS, which provided financial and procedural support to exporters, could create additional hurdles and increase operational costs. Increased sales tax on certain imported materials may raise production costs, affecting profit margins. Despite subsidies, rising energy costs could pose a challenge for energy-intensive sectors like textiles. Given previous performance and current global and local conditions, the export sector is likely to experience moderate growth. However, the introduction of the normal tax regime and reduction in EFS, combined with global economic uncertainties and domestic political stability, will play crucial roles in actual performance.
Strengthening the banking sector:
The budget proposes several measures to strengthen the banking sector, including increased funds for digitalisation, reduced corporate tax rates, and enhanced regulatory frameworks. These initiatives are expected to improve efficiency, customer service, and profitability, while ensuring better compliance and reducing financial risks.
Goals for the banking sector:
Corporate tax for banks has been reduced from 35% to 30%. An allocation of Rs2 billion has been made to support the digital transformation of the banking sector. Increased regulatory requirements could lead to higher compliance costs, and interest rate volatility may impact profitability. The banking sector is poised for growth, benefiting from digitalisation and tax cuts. However, global economic conditions and local political stability will significantly influence the sector’s outlook.
Relief for salaried persons:
Salaried individuals are set to benefit from tax relief measures and efforts to control inflation. Lower and middle-income groups will see increased disposable income, improving living standards. The government’s commitment to maintaining an inflation rate of 8% will help preserve purchasing power.
Tax reductions and challenges:
Individuals earning up to Rs1.2 million annually will now pay a lower tax rate of 10%, down from 15%. However, the tax slabs reveal that the highest impact would be on anyone earning equal to or more than Rs6 million a year (Rs500,000 a month), with a tax liability increase of Rs22,500. Interestingly, the tax increase for salaried persons earning as high as Rs12 million a year (Rs1 million a month) is also Rs22,500. While the government did not touch the income tax exemption threshold, which still stands at Rs50,000, liability has increased across all other levels of salaries. For example, a person earning Rs100,000 a month will now pay Rs2,500 a month, up from the earlier level of Rs1,250.
The number of slabs did not change, but the composition within them changed drastically. The salaried group contributed around Rs330 billion in 11 months of the outgoing fiscal year, projected to stand at Rs360 billion over the entire fiscal year — a phenomenal 36% increase during a year when inflation stood at an average of 24.5%. Inflationary pressures on housing, utilities, and transportation could offset the benefits of tax relief. While tax relief measures will benefit the salaried class, rising living costs may mitigate some of these benefits.
Revitalising the property business:
The budget includes incentives for affordable housing projects, which are expected to stimulate construction activity and make housing more accessible. Increased investments in urban infrastructure will enhance property values and attract more investments.
Affordable housing initiatives:
Increased property tax rates for high-value properties, with a new slab for properties worth over Rs100 million at 4%. Higher taxes on high-value property transactions may slow down the high-end real estate market. Changes in property regulations and compliance requirements could impact business operations. Growth is anticipated in the affordable housing sector, while the high-end market may face challenges due to increased taxes. Urban development projects will provide a positive boost, contingent on political and economic stability.
Advancing the IT sector:
The IT sector is a key focus of the budget, with continued tax exemptions and incentives for IT exports and measures to support tech startups. These initiatives are expected to drive sector growth and job creation.
IT export growth and support:
The government aims to increase IT exports to $3.5 billion. Rs1 billion allocated to support tech startups. The sector must continually innovate to stay competitive globally, and ensuring an adequate supply of skilled IT professionals is critical for sustained growth. The IT sector is set for significant growth, driven by government incentives and a burgeoning startup ecosystem. However, global competition and local workforce development will be critical to maintaining momentum.
Empowering women:
The budget allocates significant funds for programmes supporting women entrepreneurs, healthcare, and education, aiming to improve women’s overall well-being and economic participation.
Entrepreneurship and healthcare funding:
Rs500 million allocated to support women-led startups and small businesses. Rs10 billion allocated for women’s health and education programmes. Effective implementation of women development programmes is essential to ensure that the benefits reach the intended recipients. Overcoming societal and cultural barriers remains a challenge for women’s economic participation. Initiatives targeting women’s development are expected to yield positive outcomes, provided effective implementation and cultural challenges are addressed. Continued focus on education and healthcare will be crucial for sustained progress.
Social impact:
The budget emphasises social safety nets and subsidies, allocating Rs500 billion for various social protection programmes, including the Ehsaas Programme, to provide financial support to the most vulnerable segments of society. Ensuring that social safety nets and subsidies reach the intended beneficiaries without leakages is a significant challenge. Maintaining funding for social programmes amidst fiscal constraints requires careful planning and resource management. Social safety nets and subsidies will provide essential support to vulnerable populations, but their effectiveness will depend on efficient targeting and sustainable funding mechanisms.
Encouraging new investment:
The budget includes several incentives to attract foreign and domestic investment, particularly in the manufacturing and renewable energy sectors. Measures to reduce bureaucratic hurdles and improve the business environment will encourage new investments.
Investment growth targets:
Tax benefits and infrastructural support for SEZs are expected to attract significant foreign investment, targeting an increase of $2 billion in new investments. Frequent changes in regulations can create uncertainty for investors. Political instability can deter investment, highlighting the need for a stable and predictable policy environment. New investments are likely to increase, driven by government incentives and improved business conditions. However, maintaining a stable regulatory and political environment will be crucial for sustained investment growth.
Stock exchange dynamics:
The stock market is expected to benefit from increased investor confidence due to fiscal discipline and adherence to IMF conditions. Reductions in corporate tax rates for certain sectors could enhance profitability and attract more investments into the stock market. Market volatility due to global economic conditions and domestic political stability will influence market performance. The impact of new regulations on trading practices and corporate governance needs careful monitoring to ensure market stability. The stock market is expected to benefit from increased investor confidence and corporate tax incentives, though market volatility remains a potential challenge.
Impact on savings:
Higher interest rates to combat inflation may encourage savings. Tax relief measures for lower and middle-income groups will increase disposable income, allowing for higher savings. Maintaining higher interest rates could impact borrowing costs and investment decisions, potentially affecting overall economic growth. Savings are likely to increase as higher interest rates and tax relief measures take effect. However, balancing these factors with economic growth objectives will be key.
Impact on the common man:
Lower taxes for middle and lower-income groups will provide financial relief, while increased funding for social safety nets, healthcare, and education will improve the quality of life and provide more opportunities. Inflationary pressures on essential goods and services could offset some of the financial relief provided by tax cuts and social programmes. The common man is expected to benefit from tax relief and social programmes, though effective implementation and inflation control are crucial for maximising these benefits.
IMF Programme compliance:
The budget aligns with IMF programme requirements, focusing on fiscal discipline and structural reforms in the energy and tax sectors. These measures are likely to be viewed positively by the IMF, facilitating continued support and financial assistance. The budget aims to reduce the fiscal deficit to 4.9% of GDP. Successful compliance with IMF conditions is expected to release the next tranche of $1 billion.
Enhancing agriculture sector:
The budget allocates substantial resources to enhance agricultural productivity and ensure food security. Key measures include subsidies for fertilisers, improved irrigation systems, and support for modern farming techniques.
Targets and support:
- Increased subsidies for fertilisers to reduce costs for farmers.
- Investment in irrigation infrastructure to ensure efficient water use.
- Promotion of modern farming techniques and equipment to boost productivity.
Challenges:
- Ensuring that subsidies reach small and marginalised farmers.
- Overcoming logistical challenges in implementing advanced farming techniques.
Outlook:
These measures are expected to enhance agricultural productivity, improve food security, and support rural livelihoods. However, effective implementation and addressing logistical challenges will be crucial for achieving these goals.
Boosting the pharmaceutical sector:
The budget includes initiatives to support the pharmaceutical sector, including tax incentives for research and development (R&D) and measures to streamline regulatory approvals.
Support for R&D:
- Tax incentives for pharmaceutical companies investing in R&D.
- Simplified regulatory processes to expedite the approval of new drugs.
Challenges:
- Ensuring compliance with international standards to enhance export potential.
- Addressing issues related to counterfeit drugs.
Outlook:
The pharmaceutical sector is expected to benefit from these initiatives, leading to increased innovation and competitiveness. However, maintaining high standards and addressing counterfeit drugs will be essential for sustained growth.
Advancing the education sector:
The budget emphasises the importance of education, with increased funding for primary, secondary, and higher education. Key initiatives include building new schools, enhancing teacher training, and providing scholarships for higher education.
Education initiatives:
- Increased funding for the construction of new schools and upgrading existing infrastructure.
- Enhanced teacher training programmes to improve the quality of education.
- Scholarships and financial aid for students pursuing higher education.
Challenges:
- Ensuring equitable access to quality education across urban and rural areas.
- Addressing the shortage of trained teachers.
Outlook:
These initiatives are expected to improve educational outcomes and enhance human capital. However, ensuring equitable access and addressing teacher shortages will be critical for success.
Strengthening the energy sector:
The budget allocates significant resources to address the energy crisis, including investments in renewable energy, upgrading the power transmission infrastructure, and improving energy efficiency.
Energy investments:
- Increased investments in renewable energy projects to diversify energy sources.
- Upgrading power transmission infrastructure to reduce losses and improve reliability.
- Promoting energy efficiency through incentives for energy-saving technologies.
Challenges:
- Overcoming bureaucratic hurdles and ensuring timely project completion.
- Balancing energy subsidies with fiscal sustainability.
Outlook:
These measures are expected to enhance energy security, reduce power outages, and promote sustainable energy practices. Effective implementation and addressing bureaucratic challenges will be crucial for achieving these goals.
Conclusion and Recommendations:
The Federal Budget 2024-25 presents a balanced approach aimed at economic stabilisation, growth, and social equity. The incentives and measures introduced are likely to positively impact various sectors, including exports, banking, IT, agriculture, pharmaceuticals, education, and energy. However, effective implementation of these measures, along with compliance with IMF conditions, will be crucial for achieving the desired economic outcomes.
Recommendations:
- Enhanced monitoring: Implement robust monitoring mechanisms to ensure efficient utilisation of allocated funds and timely completion of projects.
- Targeted subsidies: Ensure that subsidies and social safety nets are effectively targeted to reach the most vulnerable populations.
- Regulatory stability: Maintain a stable and predictable regulatory environment to attract and retain investments.
- Inflation control: Implement effective measures to control inflation and stabilise prices of essential commodities to protect the purchasing power of the common man.
- Continued focus on education and healthcare: Prioritise investments in education and healthcare to build human capital and ensure long-term sustainable growth.
Proposal for an independent regulatory framework for the accounting and auditing profession:
Currently, Pakistan’s accounting and auditing profession is self-regulated, which raises concerns about transparency and accountability. To restore confidence among common and foreign investors, it is crucial to establish an independent regulatory body for the profession. This body should be responsible for setting standards, monitoring compliance, and enforcing disciplinary actions. An independent regulator will ensure that the profession adheres to international best practices, thereby enhancing the credibility and reliability of financial reporting in Pakistan. This move will not only protect the interests of investors but also promote a fair and transparent business environment, fostering sustainable economic growth.