Legal framework for economic development
Legal and regulatory framework for economic
development is often ignored or not given the importance that it
ByDr. Tariq Hassan
Dec 11 - 17, 2000
Economic development does not take place in a
vacuum. It requires an enabling environment, which includes a proper
legal and regulatory framework. The Government plans to lay down such
an orderly framework for carrying out its economic reforms. The
purpose of this article is to provide an overview of the Government's
legislative agenda for economic reform.
Legislative agenda for economic reform: For the
implementation of its economic reform program, the Government has, as
a matter of policy, formulated an extensive legislative agenda cutting
across various sectors of the economy, including the banking and
financial sectors, commerce and industry sectors, energy sector,
information technology sector, social sector, and last but not least
the administrative and judicial system.
Banking and financial sectors:
Mindful of the
magnitude of the defaulted loans, the banking companies' loan recovery
law is being strengthened to facilitate the process of mortgage,
foreclosure and expeditious settlement of banking disputes.
Furthermore, a Banking Laws Review Commission has been formed to
review all the banking laws and regulations with a view to updating,
consolidating and rationalizing the same. Legal measures to build
confidence, which had eroded after the freezing of foreign currency
accounts, are also being introduced to prevent such occurrences in the
Industrial finance is being revived through a
restructuring of the banking and financial sectors. Priority will be
given to the needs of small and medium industry with an export
orientation. Efforts will be focused to promote small and medium
industries, having high labour intensity.
As a follow-up of its poverty alleviation programme,
the Government has, through an enabling legislation, established a new
bank for enhancing poor peoples' access to credit. Micro-finance Bank
will mobilize funds and provide sustainable micro-finance services to
poor persons, particularly poor women, in order to mitigate poverty.
The Micro-finance Bank will promote the process of establishing
community organizations, which can sustain credit operations and
promote saving habit among the poor. It will lend to individuals
through groups with the help of such community organizations.
A Corporate and Industrial Restructuring
Corporation (CIRC) has also been established through an enabling
legislation to provide for the realization of non-performing loans and
other assets of various banks and development financial institutions.
The primary purpose of CIRC is to clean out the balance sheet of
nationalized commercial banks and financial institutions and to
prepare them for privatization.
A law providing for the manner and methods of
privatization is being promulgated to ensure realization of the
highest price, transparency and fair play. This law would not only
enable the Pakistan Privatization Commission to execute the process
efficiently but would lay the guidelines for its working and provide
for an expeditious mechanism to resolve all disputes relating to
privatization. The proceeds from privatization would be used
exclusively for the retirement of debt.
A new Insurance Law has been promulgated to provide
for a deregulated, competitive and safe environment for insurance
A new law has also been framed to provide for easy
mergers, and acquisitions, take-over and liquidation of public listed
companies and is likely to be promulgated very soon.
Changes in the Monopoly Control Authority law are
also under consideration to make it more effective without diluting
growth incentives for business.
Commerce and industry sectors:
to trade marks, intellectual property rights, industrial relations,
workers compensation, bonded labour, and work conditions, are being
reviewed with a view to being improved.
The importers and exporters registration law is
being modified to simplify procedures and to provide for an automatic
Mindful of the need to protect industries against
any unfair competition, efforts are being made following the new trade
policy to forestall any unwarranted surge of imports, or any dumping,
or any trade practices that pose an injury to domestic industry. An
antidumping law has been prepared and will be promulgated soon. This
will be followed by effective countervailing and safeguard measures.
Energy sector: Legal cover is being provided to
policy commitments in order to revive investors' confidence.
Regulatory authorities are being established for the orderly operation
and development of the oil and gas sectors. A gas regulatory authority
and a petroleum regulatory board are being established to regulate the
oil and gas sectors.
The petroleum sector is being deregulated and the
privatization process therein is being expedited for greater
efficiency, for new investment and for the retirement of public debt.
Information technology sector: Following the
recently announced Information Technology Policy, an appropriate legal
framework is being developed to regulate the IT industry, protect
intellectual property rights and promote electronic-commerce in the
Social sector: A national food stamp program
has been launched to provide sustenance to the poorest of the poor and
improvements in the Zakat and Ushr laws are under consideration.
Furthermore, the quota for disabled persons as per the special
education/social welfare law is intended to be enforced strictly.
Administrative and judicial system: There is
expected to be a significant cut in the size of the government
consistent with its role as a regulator and facilitator.
The tax system is being simplified. Two task forces
have been formed to review the existing tax administration and laws
and to recommend changes therein for the said purpose. A tax ombudsman
has been appointed to deal with public complaints against
maladministration by the revenue authorities and its employees.
Systems are being put in place to ensure that
public contracts are awarded on merit. For example, a Public
Procurement Regulatory Authority is being established to regulate and
guide the process of public procurement and hear complaints in this
regard under a separate procurement legislation to be formulated by
it. Similarly, all other economic activities like banking, finance,
aviation, telecommunications, power, gas etc., will be regulated by
independent agencies, to be formed under the law. Its members will
have security of tenure without being answerable to any executive
In addition, as part of the good governance policy,
use of executive discretion would be subject to pre-specified
criteria. Furthermore, access to public information will be allowed
through an appropriate legal cover. The Government is committed to
eradicating corrupt practices and has enacted an accountability law to
deal with corruption at the national level.
As part of the judicial reform programme, the
entire system of dispute resolution will be modernized and made
inexpensive for ordinary citizen. Alternative Dispute Resolution (ADR)
mechanisms, particularly community participation systems like the
punchaiyat, will be introduced wherever possible.
Contractual issues: A major irritant, which has
damaged Pakistan's image as an investor friendly country is the issue
of the Independent Power Producers (IPPs). Tariff negotiations with
thirteen IPPs have been concluded and the issues with remaining two
are likely to be settled soon. The second problem that Pakistan is
facing today is the crisis of confidence because of the freezing of
the foreign currency accounts. Legislative measures are being taken to
prevent such an occurrence in the future as indicated above. The focus
of the Government is to generate economic activity through developing
investors' confidence. It intends to achieve this by ensuring
stability and continuity of policy and adherence to lawful
Businesspersons usually look at monetary and fiscal
incentives in various business policies of the Government. The
importance for a proper legal and regulatory framework for economic
development is often ignored or not given the importance that it
deserves. It is evident from the above account that the Government
fully realizes the need for such an orderly framework and has provided
for an ambitious legislative agenda to meet its policy commitments. In
fact, most economic policies have so far been backed by governmental
action and are being implemented through some legislative or
From the extensive legislative agenda and the
legislative and regulatory measures taken so far, one can conclude
that the Government is taking a comprehensive economic development
approach that covers all sectors. The economic reform programme was
developed by the Government—through a professional and participatory
approach—with the help of an Economic Advisory Board—comprising
professional managers and technocrats—established by the Ministry of
Finance. The emphasis therein regarding poverty alleviation through
the introduction of a food stamp programme and the development of the
small and medium enterprise sector clearly suggests the people
oriented philosophy of the Government. The concepts of transparency
and fairness are being introduced in economic legislation and the rule
of law is sought to be established through the lessening of
administrative discretion, particularly in fiscal laws.
It is evident that the Government is not only
trying to establish a proper legislative and regulatory environment
but is also trying to bring about the necessary structural changes in
the institutional framework. The nationalized banks and development
finance institutions are being restructured, as is the system of
revenue administration. The administration of justice is being
strengthened with a view to making courts more efficient and
In addition to establishing a legislative and
regulatory framework and bringing about the much-needed institutional
reforms, it is equally important to maintain consistency in policies
and to honour contracts. As has been aptly stated by the State Bank of
Pakistan in its 1999 Annual Report: "For attracting foreign
investment, a set of monetary and fiscal incentives is not enough.
Maintaining of consistency in policies and honouring the contractual
commitments, providing improved infrastructure facilities and better
law and order situation, and upgrading labour force skills are the
important areas that need immediate attention" (Executive
*Based on a speech made by the author to the
Pakistan France Business Alliance at Marriott Hotel, Karachi on 29
*Adviser, Minister of Finance, Ministry of
Finance & Economic Affairs; SJD/LLM, Harvard Law School.