Doing business report and beyond - III

Individual aspects of the Index for 2019 highlight, among other things, that within rule of law, all three factors - property rights (with score 41.5, where all scores are graded on a scale of 0 to100; representing a situation of completely unfree and totally free for 0 and 100, respectively), judicial effectiveness (40.2), and government integrity (30.6) - are all below the world average.

Here, the report finds the situation of property rights as being weak, with overall slow working of courts, and that 'corruption, including bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement, is so pervasive in politics, government, and law enforcement that the public has come to regard it as normal.

The public has not felt normal living with this situation and for this reason, perhaps, voted for PTI (or 'movement for justice') into power, which therefore needs to deliver on its main promise of effectively tackling corruption; which would once again require improving institutional quality, although the pace of reform is indeed slow, to say the least.

Within the second pillar of government side, tax burden is although on the higher side at 80.5, it is just above the world average of close to 80. Here, in terms of government spending, the score at 87.6 is well above the world average of around 65.

The third aspect of fiscal health, about which the report indicates 'is associated with macroeconomic instability and economic uncertainty', in turn, is composed of two sub-factors: a) average deficits as a percentage of GDP for the most recent three years (80 percent of the score); and b) debt as a percentage of GDP (20 percent of score). Pakistan's fiscal health received a score of 49.2, well below the world average of close to 70.

The efforts by government before and during the IMF programme in 2019 have produced some relief in this precarious situation on the back of narrowing down of current account deficit; yet this has had only limited impact on the overall fiscal health situation since the current levels of fiscal deficit and debt burden are unprecedentedly high.

With regard to the third pillar of EFI, all three economic freedoms under regulatory efficiency i.e., business freedom, labour freedom, and monetary freedom, are all below the world averages; with labour freedom being the most far off. Here, the situation of business freedom (with score of 56.1 out of 100), which as per the report 'measures the extent to which the regulatory and infrastructure environments constrain the efficient operation of businesses' is in high contrast to a more rosier picture indicated in the Doing Business Report even when the more recent World Bank report as against the EFI report is adjusted for; and when EFI report includes the source of the World Bank's Doing Business Report along with other sources such as Economist Intelligence Unit, Country Commerce, and the US Department of Commerce, Country Commercial Guide.

Lastly, in terms of the pillar of open markets, all three economic freedoms - trade freedom, investment freedom, and financial freedom - are well below the world averages; where the financial freedom received the least score as compared to the other two economic freedoms at 40. In this regard, the Report indicates 'about [only] 25 percent of adult Pakistanis have access to an account with a formal banking institution', which not only highlights the low level of financial depth, but also the presence of a large informal sector in the economy, especially when it comes to paying taxes. Here, in an associated sense, the Report highlights 'a large portion of the workforce in underemployed in the informal sector', which points towards another reason as to why the official employment rates have been historically on the lower side, and therefore a gross under-representation of the actual unemployment situation, which needs to be corrected by related government authorities.

(Concluded)

(The writer holds a PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund. He tweets @omerjaved7)