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August 6, 2011

Weak institutions preventing sustainable growth

Peshawar

August 6, 2011

LAHORE: Although Pakistan has most liberalised trade regime in the region, its economy is still not on a sustainable growth path due to weak institutions, which are vital in implementing policies in letter and spirit.
Economic experts point out that institutional capacities depend to a large extent on the combination of the rule of law and democracy.
They say global data indicate that not only democratic governments, but authoritarian regimes as well with strong rule of law can deliver efficient institutions, which ensure sustainable economic growth.
Market analyst Yunus Kamran, FCA, said that measuring the efficiency of state and non-state institutions is not simple. In case of Pakistan, he added, the collapse of the institutions is observable in the dramatic increase of the share of the shadow economy. He said this is clear from the decline of government revenues as a proportion of GDP.
He said the inability of the state to deliver basic public goods and appropriate regulatory framework and the accumulation of tax, trade, wage and bank arrears indicates weakening of institutions.
Senior economist Naveed Anwar Khan said liberalisation was carried out without strong market institutions in Pakistan. He said the importance of liberalisation cannot be underscored, but the devil is in details, which often do not fit into the generalisations and make straightforward explanations look trivial.
He said the restructuring due to market imperfections is associated with the temporary loss of output.
Khan said economies with weak institutions under perform. He said this happens because of barriers to capital and labour flows such as poorly developed banking system and securities markets, uncertain property rights, the lack of easily enforceable and commonly accepted bankruptcy and liquidation procedures, the underdevelopment of land market, housing market and labour market infrastructure.
He said the fragility of institutions is manifested by high

and growing money velocity, by the decline of bank financing as a proportion of GDP, by poor enforcement of property rights and by poor law and order. Faisal Qamar, ACA, said that government policies certainly affect economic performance.

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