A couple of years back, the World Bank Group hailed Pakistan in its annual report Doing Business in 2006 as the top reformer in the (South Asian) region and the number 10 reformer globally.
Pakistan was ranked at the 60th position on key business regulations and reforms. India was ranked 56 and China 31 places after Pakistan.
The latest edition of the report, Doing Business 2009, issued last week records no major reforms in Pakistan, and downgrades its ranking to the 77th position only six places before China. India, ranked 122 among 20 economies, still lurks 45 places after Pakistan though.
The World Bank Group report tracks only a set of regulatory indicators related to business start-up, operation, trade, payment of taxes, and closure by measuring the time and cost associated with various government requirements while ranking the economies (in terms of ease or difficulty in doing business in any given country). In this report, it does not track variables such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions etc
The findings of two reports tell a great deal about Pakistans determination or should we call it lack of it? in reforming and restructuring its economy, says a leading businessman from Lahore who has worked with successive governments during the last 15 years.
Economic and business reforms in Pakistan are a painfully slow process; these are undertaken only when a government finds itself compelled to seek assistance from multilateral lenders like the International Monetary Fund (IMF) or the World Bank or the Asian Development Bank (ADB), the businessman, who did not want to be identified, said.
Also, we, as a nation, have never been able to develop a consensus on reforming the economy because reforms in this country are considered as something imposed on us by some foreign forces through their local agents to plunder our people. Reforms are never taken as a way of moving forward on the road to sustainable economic and social growth, he complained.
Some economic experts, however, point out that lack of political will was not the only factor that has prevented most government from undertaking economic, administrative, business, and other reforms. Most of the time, we didnt have enough money or fiscal space to put together and initiate the reforms programme, an economist, who teaches at the Lahore University of Management Sciences, told this scribe.
When we had money flowing into the country from all sources in the post 9/11 years, our rulers squandered the opportunity to reform and restructure the economy. Had we undertaken reforms in those years wed have been far better off today than we are, he said.
No country could achieve sustainable economic growth without implementing wide-ranging financial, business, administrative, social and other reforms. Our recent past corroborates that fact, the LUMS economist insisted.
Most believe that economic growth obtained in the post-9/11 years - the gross domestic product (GDP) increased by above six per cent annually during the last six years to FY08) was not sustainable because consumer spending drove it and it was import intensive.
Thats precisely why we are facing expanding current account deficit (of more than eight per cent of GDP), widening trade gap, escalating price inflation (running at 25 per cent), growing fiscal deficit (of over eight per cent of GDP) and a deteriorating balance of payments position. You cannot achieve solid growth, curb poverty, remove macroeconomic imbalances, and improve the balance of payments unless you invest in and promote productive sectors agriculture and industry instead of encouraging services sector and consumption, he said.
An economist associated with a foreign bank said the capital inflows had played a big role in the GDP increase in the recent years. The previous government of Pervez Musharraf and Shaukat Aziz sold itself well to the West, particularly the United States (after 9/11), and leveraged economic growth on capital inflows, he said.
Though the (Musharraf-Aziz) government did take some policy measures initially to deregulate and liberalise the economy, it failed to undertake any meaningful, basic economic restructuring. Tax revenue did rise substantially in these years (to Rs1 trillion ), but the tax- to -GDP ratio remained unchanged. Also the government expenditure was not rationalised. But then it is the story of last 60 years of Pakistan: when capital inflows are pouring in we show spurts of impressive growth for a few years and then relapse into a crisis like situation, he said.
With the completion of transition to democracy following the election of Pakistan Peoples Party leader Asif Zardari as president, most people are anticipating multilateral and bilateral lenders to renew their focus on Pakistans economy. The indications so far are that Pakistan should begin receiving foreign inflows in the form of loans/grants/aid over the next couple of weeks with the release by the ADB of programme loan tranche of $500 million.
The American administration has already put together a financial assistance package of $15 billion spread over next 10 years and the Saudis are most likely to announce an oil facility of just below $6 billion. The Saudi government is also said by finance minister Naveed Qamar to be considering another economic package to help Pakistan come out of its current economic difficulties.
The international forces do recognise the difficult economic situation. We dont yet know how much shall we receive from multilateral and bilateral donors over the next year. But that should be sufficient to take care of our immediate economic and financial problems, arrest downward slide and stabilise the economy and put it back on the growth trajectory, said a senior official in the federal finance ministry from Islamabad.
Besides, he said, the government also intended to float sovereign bonds to raise funds from the international financial markets. But he did not give the size of the loan the government planned to raise by issuing bonds. He also refused to say anything as to when the global financial markets would be tapped.
Although most economic experts believe that both multilateral and bilateral lenders are most likely to bail out Pakistan because of its strategic importance in the global war on terror, they are skeptical of the return of private direct foreign investment.
We may obtain something from the donors/lenders because of political reason. But I am not too optimistic about the private capital inflows. That would require a substantial change in the country perception and the strength of the economy. Also their concerns over security situation have to be removed. Therefore, I think it will take a while before we get capital private inflows, says Navaid Hamid, who teaches economics at the Lahore School of Economics (LSE). The finance ministry official argued that certain unseen global factors like runaway food and energy prices and turmoil in the international financial markets as well as domestic developments like growing political instability, deteriorating law and order conditions, etc had badly affected the economy at a time when what he often describes as business cycle was maturing.
Rest assured that the government is working to restore macroeconomic stability, the finance ministry official said. He said the government was committed to achieve its budgetary target of containing fiscal deficit by cutting subsidies on oil and power, reducing development expenditure and taking other austerity measures.
But he did not say if the government planned to undertake crucial civil service, property, tax, judicial, and other reforms to put the economy on the road to sustainable growth. Fundamental restructuring (of the economy) will have to be done concurrently, said the economist from the foreign bank.
You may once again leverage the much anticipated foreign inflows to achieve yet another spurt of growth in GDP and stabilise and improve the macroeconomic indicators. But that will not be sustainable unless you reform various sectors of the economy and the legal, judicial, administrative, and legislative processes. Nor will that benefit the poorer segments of the population. Once the capital inflows dry up again, we will be back to the square one, he argued.
