Easy business

November 18,2018

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Amidst talk of the crises looming over the economy, it was assuring to hear Prime Minister Imran Khan take pride in the improved business environment of the country and his ambitious aim of ensuring Pakistan’s place among the top-100 economies by next year.

To put these in context, the World Bank in its latest ranking of Ease of Doing Business (EoDB) has put Pakistan 11 points above where it stood last year. This ranking is considered as the primary guidebook against which foreign investors base their investment-related decisions. This year’s ranking has comfortably positioned Pakistan at 136 out of 190 countries ranked. It is clearly not an impressive number – but it is still 11 points better than what Pakistan was ranked the previous year. Now that Pakistan has improved its standing by a momentous 11 points, the pertinent question is: can PM Khan’s wish of Pakistan being among top-100 of the rankings be fulfilled by next year?

The World Bank calculates EoDB ranking by measuring and tracking changes related to 10 parameters: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investor, paying taxes, trading across borders, enforcing contracts, resolving insolvency, and labour market regulation. It is worthwhile to note that in Pakistan’s context, the surveys for this ranking were only carried out in Lahore and Karachi.

According to the World Bank, progress in Pakistan’s position is credited to reforms instituted in three areas. To begin with, Pakistan successfully introduced the one-stop registration system which made it easier for businesses to start a new venture in Pakistan. In addition, registration-related reforms such as automated administration procedure and enhanced transparency were introduced. These further contributed in reducing hassles related to registration of property. Lastly, reforms were initiated to ease the process of resolving insolvency. These were done through initiating the reorganisation procedure and improving the continuation of the debtor’s business during insolvency proceedings. The aforementioned administrative restructuring in three areas helped Pakistan climb up 11 spots in just one year.

If Pakistan manages to get out of the bottom tier, it will not be the first time. The country was ranked at 70th in the EoDB report in 2008. However, keeping the current economic conditions in mind, moving up at least 36 spots in one year will be a tough challenge. Three of Pakistan’s neighbouring countries have made substantial progress this year: Afghanistan has moved up 16 places, China is up 32 and India has managed to jump up 33 places in the last twelve months. When there is so much room for development, big leaps are rather easier; once amongst the top tier, moving up becomes much harder. At this point, Pakistan too can capitalise on its immense untapped potential, considering the vast availability of scope for development. Hence, it is not irrational for PM Khan to aim for Pakistan to be amongst the top-100 economies by 2019.

According to the Government of Pakistan’s Vision 2025, the target is to bring Pakistan among the top 50 economies by 2025. Noting this target, and PM Khan’s ambitions, it is crucial to carefully initiate reforms in areas where it would bring about maximum, yet sustainable, results. For a start, Pakistan must focus to regain its lost points alongside any other planned reforms. In addition, a holistic view of the report shows three key areas where the country has lost points this year. Therefore, several changes can be made in the regulations and laws within these three areas.

First, Pakistan ought to try to recuperate its lost score by improving the time it takes for a venture to get a warehouse ready, including obtaining necessary licences and permits, go through inspections and obtain utility connections. According to the EoDB report, Pakistan has lost 25 points in the category of ‘dealing with construction permits’. This underscores the point that the issue of paperwork red tape has in fact gone up in the previous year. For Pakistan to gain business confidence, it is imperative that it focuses to cut back the hassles attached with opening a warehouse. The most significant improvements in this area were credited to India, which has recently launched a single-window clearance system, shunning all the requirements of conventional paperwork. Pakistan can either follow India’s model or construct its own model. Either way, it has to be done urgently.

Second, in the area of ‘getting credit’, Pakistan’s performance has deteriorated as compared to last year. Getting credit covers two aspects: the strength of credit reporting systems and the laws in facilitating lenders. The numbers by the World Bank paint rather a bleak picture in this area. For instance, compared to the South Asian average of 5.5 in reporting credit information and protecting the legal rights of investors, Karachi and Lahore both have a score of 2, whereas, India leads with 8 points. The data in the EoDB report is very comprehensive and accentuates not only the areas where Pakistan has performed critically low but also the pinning-points where it can improve the most. It is worth mentioning that Afghanistan has been termed as the top improver of this year’s ratings and one of its successes come from ameliorations in the getting credit category. Getting credit is an easier area for Pakistan to penetrate as it had a better score last year.

And, lastly, Pakistan has also failed to hold its previous position in the category of ‘paying taxes’. Given the current fiscal challenge in the economy, a solid taxation system is unquestionably the need of the hour. In the words of Dr Faisal Bari, the predominant factor contributing to the present fiscal challenges is a “poorly designed and poorly functioning tax system.” Pakistan does not have to look far for potential remedies; the World Bank underscores the positive reforms carried out by all countries in its final report. For instance, the report asserts that, “China made paying taxes easier by abolishing the business tax, allowing for joint filing and payment of all stamp duties and by implementing several administrative reforms to lower the compliance time.” Thus, Pakistan can either seek foreign expertise – perhaps from China – or follow models that have worked in economies similar to it without wasting time or resources in reinventing the wheel.

The present administration has taken over with the promise of instituting significant socio-economic reforms, primarily to bring about changes to ameliorate the economic conditions of the country. If PM Khan and his close economic aides carefully target and hit the right notes, cracking into the top-100 economies shall not be a distant dream anymore. However, improved business environment across the country should be the desired end, not being placed in the top 100.

The writer is a Young Development Fellow at the Ministry of Planning, Development and Reform, and an associate researcher to the chief economist of Pakistan.

Email: sikanderbizenjogmail.com


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