ISLAMABAD, Aug 9: Corruption remains a problem in Pakistan where enforcement of contracts, financial obligations, and bankruptcy laws and interpretation of tax laws remain difficult, says the International Monetary Fund (IMF). In its latest working paper made available to Dawn, the IMF said, educational and human development indicators (in the country) had remained weak, resulting in a workforce often ill-equipped with the skills necessary for higher value added productions.

It said there was much room for improving physical infrastructure of the country, the current state of which contributed to high costs of doing business. The paper said some impediments to domestic and foreign investment, namely political and security risks, could not easily be removed or offset with right economic policies but that should be viewed as challenge to do more and better than elsewhere in the region.

The authors of the working paper are IMF Senior Resident Representative in Pakistan Henri Lorie and Senior Economist in the local IMF Resident Mission Zafar Iqbal. According to them, much has been done in recent years to improve the business climate in Pakistan and that Pakistan ranks well in this regard within the South Asian region.

Among 22 indicators of the World Bank’s ‘doing business’, Pakistan is doing better than other South Asian countries with regard to 13. “It lags, however, significantly behind China and Thailand outside South Asia.”

The World Bank’s investment climate surveys also suggest that Pakistan is behind India, China and even the Philippines in terms of providing an enabling environment for investors.

“Clearly, further progress can be made in Pakistan. For instance, property rights remain week, because of (factors including) poor land records; there is still too much government intervention with market mechanism in case of some key commodities; red tape is still excessive, particularly at provincial level; labour regulation has hindered functioning of formal labour markets and employments; corruption remains a problem (Pakistan ranked 129 out of 146 countries in the Transparency International Corruption Perception Index 2004).”

The paper said that higher foreign direct investment (FDI) in Pakistan would relax the foreign exchange constraints for imports, and support the increase in the investment/GDP ratio, necessary to deliver the higher growth rates.