Is deregulation the best way forward?

The mantra that deregulation is the best way to deal with public sector inefficiency and corruption has been supported by Pakistani administrations. It is perhaps the only major policy on which there is a consensus between the donor agencies and successive governments (military and civilian) – a consensus critical for a country that is currently on its twenty-fifth programme loan (on average three year’s per programme) in our seventy-nine-year history.

Empirical research indicates that the concept that deregulation provides a cure for all that ails a specific sector is intrinsically flawed as regulation has its pros but also its cons.

The pros include seeking the correction of market imperfections by applying laws that are enacted by the government on individuals or private sector firms or indeed state sector entities with punitive penalties for non-compliance often developed and administered by executive agencies/regulators.

The cons include inefficiency as regulators may become over-zealous or exercise their powers autocratically or become adversarial to those entities they regulate or are susceptible to bribery by industry.

Regulations can be highly prescriptive or goal-oriented where the actors as per an article uploaded on the Brookings Institute website titled “Why do we have government regulations, and how can we improve them” authored by Patnaik, Schraq and Kane dated 16 June 2026: “Ultimately the core economic rationale for regulation is to correct for market failures like excessive market power, negative externalities, information asymmetries, and tragedies of the commons. Although non-regulatory solutions can effectively solve simple or low stakes market failures regulation often is needed for high stakes or complex situations. When the government correctly identifies market failures and implements carefully considered and calibrated regulations, this often improves aggregate economic outcomes. On the other hand, inefficient regulation can accumulate for a variety of reasons. Regulators may become zealously adversarial to industry and impose unnecessary costs on corporations and consumers, or they may become captured by industry interests and pursue regulation that benefits politically organized industry groups at the expense of consumers, workers, or other industries. Regulatory budgeting can help reduce the accumulation of outdated regulations, but may not solve governance challenges relating to regulatory capture or administrative capacity.”

The authors recommend policy makers to consider regulatory reform, and letting the core economic rationale of regulations as solutions to market failures guide their decisions and consider how reforms to administrative processes or revisions to specific regulations enhance or diminish the ability of regulations to serve this core purpose.

Pakistani private sector largely operates under imperfect market conditions, including the aarthis, (with generational interaction with those farmers without access to borrowing from the banking sector) who purchase farm produce cheaply and sell it in the market to maximize their profits. Most of the large-scale manufacturing sub-sectors (textiles, sugar, cement etc.) have set up powerful associations that allow them to band together, thereby creating market imperfections to ensure favourable policies.

And finally, some regulators are used for partisan purposes, while others attempt to protect the consumers is compromised as and when the government levies high taxes on the end product.

Pakistan had 118 regulatory bodies in the following sectors as per a study done by the Pakistan Institute of Development Economics authored by Nadeemul Haq and Ahmad Waqar Qasim dated 2022: (i) 13 applicable to the manufacturing sectors including Competition Commission of Pakistan, Export Development Fund Boards, Export Processing Zones, National Tariff Commission, Pakistan Industrial Development Corporation; though the Utility Stores Corporation is redundant by now; (ii) 11 in the Energy and Power sector including Oil and Gas Regulatory Authority, Private Power and Infrastructure Board, Central Power Purchasing Authority, National Electric Power Regulatory Authority. However, it is unclear why Pakistan Electronic Media Regulatory Authority has been clubbed under this sub-head; (iii) 16 in Law and Justice including accountability courts, banking courts, commercial courts, federal service tribunal, environmental protection tribunal, competition appellate tribunal, customs appellate tribunal, (one would assume election tribunals though they are not listed in the study; (iv) 12 related to education and professional training; (v) seven in agriculture; (vi) seven in real estate, including federal government employees housing authority and Pakistan public works department; (vii) five in tourism and climate change including ministry of climate change; (viii) financial including SBP, SECP and controller general of Accounts; (ix) three in transport and communications, (x) three in security; (xi) six in healthcare; (xii) seven cross-cutting, including CDA, FBR and FIA: and (xiii) 22 others.

Three observations are evident. First, as noted earlier, there is overwhelming evidence of elite capture of most of the country’s resources, a capture that extends to taxes, given that around 70 percent of all taxes are sourced to indirect taxes whose incidence on the poor is greater than on the rich.

In addition, the elite not only influence policies that benefit them materially - a stark example is the Pakistan Cricket Board that empowers the Chairman to take all decisions as long as he holds the position. And the regulatory bodies for the real estate sector – a sector that is alleged to be the major recipient of black money.

Second, NEPRA and OGRA determine the tariffs after considering all prevailing input costs.

However, market imperfections prevail in these sectors due to inefficiencies (evident from the massive circular debt stock) – a tariff that is then upped by the government in the form of taxes/surcharges and fuel adjustment charges, collections that are not dedicated for use by these sub-sectors for retiring the circular debt but by the federal government to fund its current (non-development) expenditure.

And finally, all regulatory bodies that deal with law and justice are seen as taking partisan decisions which create an atmosphere of distrust. This needs to be dealt with forthwith.

Today the government is considering deregulating many sectors, including setting the price of petroleum and products. The conclusion of Patnaik, Schraq and Kane is simpler and perhaps more effective in our context: “as policymakers consider regulatory reform, they should let the core economic rationale of regulations as solutions to market failures guide their decisions and consider how reforms to administrative processes or revisions to specific regulations enhance or diminish the ability of regulations to serve this core purpose.”

To conclude, change requires an end of elite capture, not employing regulators in a partisan manner, if taxes are imposed on one sub-sector, say electricity, then collections must be dedicated to that sector to ensure full cost recovery, and slashing current expenditure to increase fiscal space rather than taxing the end products that leads to the axe falling squarely on the common man.

Copyright Business Recorder, 2026