ISLAMABAD, Jan 21: The World Bank believes that inadequate incentive regime, risky and weak regulatory framework and weak financial institutions were major reasons for an unattractive investment climate in Pakistan.

The bank is of the view that it is the government failure to maintain a favourable investment climate in the country that has constrained the growth of a dynamic, competitive and sustainable private sector in the 1990’s, official sources quoted a bank report submitted to the federal government recently.

These sources said that based on these observations the World Bank would be interacting with the new elected government in Pakistan over the next few months to set the agenda for assistance during the next couple of years.

Pakistan’s potential to attract foreign direct investment (FDI) has although improved marginally from 141 points in 1990 to 159 points in 2000 yet its relative performance to secure FDI has reduced significantly from 6 points to 2 points, according to an UNCTAD report.

The bank said that one of the most important factor was inadequate incentive regime from a combination of unfinished trade policy reforms, continuing reliance on sectoral industrial policies, an unfriendly investment regime, poor tax administration, excessive regulatory burden and a recurring pattern of policy instability.

Secondly, risky and weak regulatory framework in infrastructure particularly in the key growth supporting sectors of gas, mining, power and telecommunications.

Thirdly, weak financial policies and institutions that discourage availability of financing for private investment and finally the risky macroeconomic environment.

The bank said the country was still in the process of formulating a strategy to realize the vision although the vision for private sector led development is well-articulated. Signs that some of the key investment climate issues are beginning to be tackled are apparent.

The report said that infrastructure services also suffer from a weak regulatory framework that hurts the investment climate by inhibiting private investment in infrastructure, undermines the competitiveness of the economy and exacerbates macroeconomic vulnerabilities.

Since the mid-1990s, the government has pursued policies aimed at attracting private sector investment in infrastructure. However, progress has been impeded by the risks stemming from a weak and unstable regulatory framework for the efficient provision of infrastructure services.

The bank said that despite a number of regulatory decisions in the power sector, implementation issues remain.