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Saturday June 22, 2024

Reform agenda

By Mansoor Ahmad
May 23, 2024
A representational image showing people at a busy market in Rawalpindi. — AFP/File
A representational image showing people at a busy market in Rawalpindi. — AFP/File

LAHORE: Pakistani planners, despite tall claims, are still shy of investing in their human resources and reluctant to provide a level playing field to all citizens. Meanwhile, they continue to keep major utilities under their control.

Stabilizing the economy without reforming those who manage this country might keep us afloat a little longer. However, the affluence that the common man aspires to is unlikely to materialize until the mentality, approach, and culture of governance change. We need to remove hurdles to growth instead of exacerbating them through non-implementation of reforms.

Countries that have attained and sustained rapid economic growth share three prominent commonalities. First, they invest in their human resources, recognizing that a country cannot develop with underdeveloped people. Productivity and global integration require a skilled and capable workforce.

Second, no country has developed without being able to sell its products to others and acting as a destination for goods, services, and capital. Encouraging exports and foreign investment is essential for accelerating growth.

Third, countries relying heavily on the public sector for economic strategies have been left behind. Even countries with authoritarian political structures have made rapid economic progress by liberalizing their economic systems.The most critical measures to improve the profitability of private investment fall under the domain of what is commonly termed ‘governance.’ These measures include addressing the workings of the bureaucracy, judicial system, taxation system, regulatory framework, price mechanism, institutional arrangements for education and technical training, and more. Unfortunately, Pakistan ranks at the bottom globally in these areas.

Our planners often neglect small and cottage industries. These sectors require state facilitation for research and innovation. Currently, most training, research, and innovation occur in larger market share firms due to the lack of facilities for formal risk-taking. Investment climate improvements primarily benefit these larger firms, which are better equipped to cope with adverse forces and take advantage of upturns.

Corruption imposes a tax on productivity and competitiveness. The system is so corrupt that reforms and regulations are rarely implemented. Each new regulation increases the bribe rate, perpetuating the cycle. Although the quality of regulation is improving in Pakistan, antiquated laws enforced by autonomous and government institutions at federal, provincial, and local levels hinder progress. The openness of the economy, rapid globalization, and sophisticated firms operating in Pakistan expose inadequacies in the regulatory framework. As a result, enforcement often involves arbitrary discretion, imposing high compliance costs on formal firms and forcing others to operate informally.

Legal inadequacies and procedural deficiencies prevent indisputable land titles, contributing to case backlogs in the courts. Without clear property rights, lenders hesitate to consider land as loan collateral unless an original sale deed is in the bank’s possession. This lack of clear property rights results in ‘dead capital,’ hindering leveraged investment, firm-level entry, and efficient resource allocation. Efforts to revive this ‘dead capital’ have thus far failed.