The World Bank ranked Pakistan as one of the top 20 improvers in Doing Business 2019 with a 28 point improvement - from 136 to 108 out of 190 countries. Prime Minister Imran Khan promptly tweeted that, "another of our manifesto commitments fulfilled, this time on Ease Of Doing Business (EODB). Pakistan achieves biggest improvement in its history in World Bank's EODB rankings. I want to congratulate all the people in our government who worked hard to make this happen," though he wisely added "there is a long way to go."
Hafeez Sheikh unable to resist taking credit for the improvement tweeted on 24 October while still abroad (he left the country on the 14 of October) that the improved ranking indicates that "the government's structural reforms are getting international recognition." Needless to add, the structural reforms pledged by Sheikh under the 6 billion dollar Extended Fund Facility programme (approved by the International Monetary Fund which has been generating considerable angst amongst the general public with inflation projected at 13 percent this year) envisages improving business environment through procedural adjustments including (i) reducing customs related processing time and hours to prepare import/export documents, (ii) adoption of e-registration and streamlining documentation and (iii) conducting a yet to take place systematic review of existing regulations to remove those that most hinder investment. All these improvements are on paper though without a systematic review the impact on business environment remains unclear. Other much more critical components of pledged structural adjustments remain pending including increasing SOE transparency, sorting out which SOEs are for sale, liquidation or to be retained under government management, and enhancing SOE legal framework.
Sadly ignored by the Prime Minister and Hafeez Sheikh is the negative productivity data which is not unusual for politicians though one would have hoped that a technocrat would have restrained himself from exhibiting this proclivity: large scale manufacturing (LSM) output registered negative growth last fiscal year (6 percent) as well as during the first two months of this year for which data is available (3.28 percent in July and 7.06 percent in August as per Pakistan Bureau of Statistics). However, what is baffling is that the World Bank team engaged in EODB rankings did not deem it relevant.
The World Bank would of course justify itself by pointing out that actual productivity is not a component of EODB. The six factors that contributed to the country improving its ranking as per the World Bank are as follows: (a) starting a business was made easier through more procedures being available through the online one-stop shop; (b) improvements in property registration - obtaining a construction permit was easier after the Sindh Building and Control Authority and the Lahore Development Authority streamlined approval workflows and improved the operational efficiency of their one-stop shops; (c) launching online portals for new commercial connections made getting electricity connections easier; (d) tariff changes to be announced in advance; (e) tax compliance easier through online payment modules for value added tax and corporate income tax, and a lower corporate income tax rate; and (f) trading across borders easier by enhancing the integration of various agencies into an electronic system and by improving coordination of joint physical inspections at the port. Again all these measures are procedural and if there is no correlation with actual business productivity then their usefulness can and must be challenged.
The World Bank, an institution that boasts of qualified and experienced staff, should not dismiss the lack of synchronicity between an improved EODB ranking and actual productivity. In other words, there is a need to include productivity in the EODB matrix because without that the results for countries like Pakistan are irrelevant.
Abdul Razzak Dawood, Advisor to the Prime Minister on Commerce and Industries, when asked about this lack of synchronicity stated that Pakistan's improved ranking would benefit the country in the long term and insisted that it would send a positive signal to foreign investors. One can only hope that it would send a positive signal to foreign investors and compel the Governor State Bank to reduce the 13.25 percent discount rate (a factor responsible for a raise in the input costs and therefore reduced productivity) and thereby abandon his overwhelming focus on attracting hot money into Pakistan at such a very high cost.
The World Bank report on EODB also revealed that while Pakistan is one of 20 top improvers yet our major regional competitors are also on this list. So what did India do to be in the list of top 20 improvers? Much more than Pakistan with Mumbai and New Delhi making it easier to obtain construction permits by allowing the submission of labor inspector commencement and completion notifications through a single-window clearance system. Starting a business has also been made less costly through abolishing filing fees for the incorporation form, electronic memorandum of association and articles of association. Exports and imports have been made easier through integration of several government agencies into an online system and the upgrading of port equipment and infrastructure.
China too has further improved on ease of doing business. Customers can now apply online for new electricity connections, sign their supply contract electronically and learn about tariff changes at least one billing cycle in advance. Paying taxes has been made easier by implementing a preferential corporate income tax rate for small enterprises, reducing the value added tax rate for certain industries and enhancing the electronic filing and payment system. Exporting and importing is now easier due to advance cargo declaration, upgraded port infrastructure, optimized customs administration and the publishing of fee schedules. In addition, commercial litigation has been enhanced by limiting adjournments and publishing court performance measurement and progress reports. China has also strengthened minority investor protections by imposing liability on controlling shareholders for unfair transactions with interested parties and clarifying ownership and control structures. Lastly, enhanced priority rules for creditors who provide credit to insolvent businesses are in place with increased access to information from the insolvency representative.
To conclude, in 2019 report India was ranked at 60 and China at 30. As Prime Minister Imran Khan stated in his tweet there is a long way to go.
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