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Ease of doing business in Pakistan – making things better

According to World Bank’s Doing Business Report 2019, Pakistan carried out three business reforms during the past year to help create jobs, attract investment and make the economy more competitive. This year, Pakistan advances 11 places to 136th place on the ease of doing business global ranking. On the measure of absolute progress towards best practice, Pakistan improved score to 55.31, from 52.78 last year. The reforms of the past year covered the Doing Business areas of starting a business, registering property and resolving insolvency. Substantial reforms at both federal and provincial levels over the past year have contributed to this improvement, however, this improvement needs to be sustained and accelerated.

During the past year, starting a business was made easier by enhancing the online one-stop registration system, replacing several forms for incorporation with a single application, and establishing information exchange between the registry and the tax authority. As a result, the time to start a business was reduced from 20 days to 17 days, while the cost was reduced from 7.9 percent of the income per capita to 6.8 percent. The reform applies to both Karachi and Lahore, the two cities measured by the Doing Business report.

Several improvements have also been made in the area of registering property. For instance, Lahore made registering property easier by streamlining and automating administrative procedures and by increasing the transparency of its land administration system. Karachi similarly made registering property easier by increasing the transparency of the land registry. The reforms resulted in reducing the time needed to register a property by 13 days. However, at 144 days, registering property in Pakistan can be made yet easier so that the country can surpass the South Asia regional average of 114 days.

Pakistan has also made resolving insolvency easier by enabling the continuation of the debtor’s business during insolvency proceedings. As a result, the country significantly improved its global ranking in this area to 53, from 82 last year. Pakistan performs best in the area of protecting minority investors, earning 9 out 10 points in the extent of ownership and control index, which measures governance safeguards protecting shareholders from undue board control and entrenchment. Globally, Pakistan ranks 26 on this measure.

Capitalizing on these improvements, there are more opportunities for improvement in many other Doing Business areas. For example, in getting electricity and dealing with construction permits, the country ranks 167 and 166, respectively. It takes a business in Pakistan 161 days to obtain an electricity connection, compared to the South Asia regional average of 98 days and the cost is 50 percent more than elsewhere in the region.

This is also a good sign for the SMEs that are the backbone of Pakistan’s economy, constituting almost 90 percent of all enterprises in Pakistan, employing 80 percent of the non-agricultural labor force and contributing 40 percent to GDP. Improvements in the Doing Business rankings and establishing macroeconomic stability and will send a message to SMEs and larger investors that Pakistan is open for business and will remain globally competitive. Recent global experience shows that investors make long-term decisions based on a country’s business climate and macroeconomic outlook. As Pakistan modernizes the business regulatory environment, it will be important to implement complementary reforms ensuring medium-term macroeconomic stability. Components of the latter include a flexible exchange rate to maintain competitiveness, limiting the general government fiscal deficit to a level that is consistent with low inflation, minimizing contingent liabilities so that fiscal risks remain low, and having a well-capitalized financial system that ensures stability while providing innovative financial products to the private sector.

These reforms will also lead to upgrading the technological stock, enhance productive skills and create linkages of SMEs with larger enterprises. These in turn will deliver new and better jobs, especially for youth. Reforming regulations and procedures, improving ease of paying taxes and establishing an online business portal will improve the social contract between the state and citizens, provide more incentives for female entrepreneurs to establish businesses and lead to progressive formalization of the economy.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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