Analysis: The govt’s indifference to economic competitiveness

Between populist spending and institution-building, politicians always pick former.

KARACHI:

At this point, it is almost a tradition. For the eighth year in a row, the World Bank has come out with its Doing Business report, and for the seventh time, Pakistan has seen its ranking drop, largely due to the fact that virtually no major policymaker in Islamabad can even spell economic competitiveness, let alone formulate a cohesive national policy and push it through Parliament.

The drop in ranking would be depressing enough, but what makes it worse is the World Bank’s observation that over the last two years, the government has undertaken no major or minor reforms to improve Pakistan’s economic competitiveness, and actually undertaken at least one that would harm it.

What is even more frustrating is that many of the reforms that other countries have implemented are not out of the realm of possibility for Pakistan, and certainly not particularly expensive. How much would it cost, for instance, to create an electronic database of all land records in the country? Probably slightly more than the $600 million that the World Bank offered in funding to the governments of Sindh and Punjab to implement such a project. Yet doing so would make it infinitely easier to register property in the country, and improve Pakistan’s rank from the abysmal 126th it is now.

And how about making it easier to pay taxes? The government will cry incessantly about the need to raise revenues and how tax evaders are bleeding the country dry, but has done absolutely nothing to reduce the estimated 560 man-hours that it takes to make the roughly 47 payments per year that an average company needs to make. In the developed country group Organisation for Economic Co-operation and Development (OECD), it takes 176 man-hours to make the 12 payments per year.

There are probably many other reasons why we have tax evasion in Pakistan, but surely the agony is that the tax bureaucracy in this country is one of them. Reducing it would almost certainly bring in more revenues and improve competitiveness, but on this, there has been absolutely no movement by the government, resulting in Pakistan’s ranking consistently dropping, coming in at 162nd in the most recent edition of the report.

And for all the talk of judicial independence, why are Pakistani courts still so painfully slow in enforcing contracts? The World Bank estimates that it takes an average of 976 days to enforce a contract, compared to 510 days in more developed economies. In every single budget – federal or provincial – there was no provision for any increase in the number of courts during fiscal 2013, and even the budgets of the existing courts were not increased by a rate that would keep pace with inflation.

There is at least one institution that has been pushing for a variety of reforms that would make life at least marginally easier for entrepreneurs: the Securities and Exchange Commission of Pakistan (SECP). As the registrar of companies, in addition to being a regulator for several sectors, the SECP has considerable authority in helping shape the business environment in Pakistan.

But while SECP Chairman Muhammad Ali is praised for having the right ideas, he himself admits that he has not had as much success in pushing the necessary legal changes through Parliament.

The chairman, though, is up against a daunting task. Policymakers in Pakistan would much rather spend in excess of Rs500 billion on electricity subsidies rather than spending much smaller amounts on improving the regulatory infrastructure of the country. Reducing red tape is not sexy, and giving away free stuff gets you votes. To the average political mind in Pakistan, that is the equation they are looking at, global economic competitiveness be damned.

Published in The Express Tribune, October 24^th, 2012.