IT is all about momentum and the government has started building it up to improve the overall business climate, notwithstanding the current political tension. The successful completion of at least three events — launch of Eurobond and the sale of minority shares of UBL and PPL — has been followed by a positive third review by the IMF.

This has led to upgradation of the country’s credit rating by Standard and Poor’s and Moody’s, and the feel-good atmosphere has strengthened. The benchmark stock index has passed the historic 30,000-point mark.

These are significant developments, coming after almost a decade. The privatisation programme and the offering of bonds in the international market had come to an end about 7-8 years ago because of the negative perception about the business climate.

The government needs to be extra careful going forward, because any misstep at this stage can adversely impact the momentum. This key risk area was clearly highlighted not only by the IMF, but also by the S&P and Moody’s.

Conceding that access to finance for the poor and marginalised segments, including micro, small and rural enterprises, remains limited owing to both demand and supply-side constraints, the government and the central bank are in talks with the World Bank for developing a comprehensive National Financial Inclusion Strategy

The selection of financial advisers for PIA this week may prove to be critical. And many consortiums bidding for the financial advisory position may not have fulfilled the crucial requirement of being top tier financial experts with an expertise in aviation. While big-name financial experts maybe involved in a majority of these consortiums, their exposure to the aviation industry may be limited and expertise non-existent.

Secondly, an accounting firm is part of three bidders. Another has finalised the accounts of PIA for as late as June 30 — showing a conflict of interest. The privatisation board takes a final decision tomorrow and needs to be extra-vigilant.

The IMF has acknowledged the progress on the trade policy reforms because of simplified tariff structure and the government’s plans to move from eight tariff slabs to six by shifting most items in three and 35-25pc rates. The phasing out of SROs has also begun.

The IMF is, however, a bit uneasy over the government’s lagging efforts to improve the business climate. Among the key downside risks is the challenging security situation and rising political tension. Delays and slippages in reform could dim the outlook. The case in point is the continued bleeding of state-owned entities and the slow progress in inducting professionals in energy companies, PIA, Pakistan Steel and Pakistan Railways.

The government concedes that private investment and growth are hampered by impediments in the legal framework for creditors’ rights and contract enforcement, as well as by barriers to entry for business start-ups and complicated legal and taxation requirements. Impaired access to finance also hampers the business climate and investment.

To put an end to it, the government has prepared the draft Corporate Rehabilitation Act, and completed a study to identify the needs of corporations to speed up rehabilitation of weak but viable companies a couple of months ago. Based on the findings of the study, the government intends to expedite the liquidation of insolvent entities. In addition to this, it has expanded the use of Alternative Dispute Resolution (ADR) mechanisms beyond Karachi to Lahore.

For start-ups, the Federal Board of Revenue — in coordination with the Securities and Exchange Commission of Pakistan, Employees Old Age Benefits Institute (EOBI) and other stakeholders (including provinces) — has approved a plan to simplify procedures and reduce costs for setting up businesses, and have prepared another proposal for paying taxes in Pakistan.

The government is expected to finalise in a few weeks a time-bound, detailed implementation plan in coordination with IFIs and after consultation with key stakeholders.

Conceding that access to finance for the poor and marginalised segments, including micro, small and rural enterprises, remains very limited owing to both demand and supply-side constraints, the government and the central bank are in talks with the World Bank for developing a comprehensive National Financial Inclusion Strategy (NFIS) to improve their access to financial services.

The strategy will include regulatory reforms to encourage microfinance banks to upscale their credit operations, develop risk mitigation mechanisms, market interventions for strengthening credit enhancement mechanisms, improve market information and infrastructure, develop innovative products, and improve delivery mechanisms, financial literacy and consumer protection.

In this regard, the SBP and the World Bank have started a mapping exercise to take stock of existing initiatives and identify gaps for future interventions. Following this, the SBP and the WB will conduct detailed consultations with all stakeholders to develop the NFIS.

The government believes that trade policy reforms will increase consumer welfare and stimulate growth as a result of increased competition. Simplifying tariff rates, phasing out SROs that establish special rates and/or nontariff trade barriers in some 4,000 product areas, and improving trade relations should deliver the much needed competitive environment.

While no thaw in trade relations with India is expected, at least for now, the focus would remain on taking full advantage of trade preferences available from the European Union under the GSP Plus, for which the prime minister has ordered setting up of treaty implementation cells at all provincial capitals, as well as introduction of about 14 new laws for protection of the rights of women, minorities and children before the first GSP Plus review this October.

Published in Dawn, Economic & Business, July 21st, 2014