ISLAMABAD, July 14: The World Bank has asked Pakistan to improve the investment climate by removing excessive red-tapism and too much government intervention with the market mechanism.
Informed sources told Dawn on Saturday that World Bank's various surveys on investment climate suggested that Pakistan was behind India, China and even the Philippines in terms of providing an enabling environment to the investors.
The bank said that further progress could be made in Pakistan to attract investment by improving Intellectual Property Rights (IPR), which still remains weak. Similarly, due to poor land record, there was too much government intervention with the market mechanism, especially in the case of some commodities.
The red tape is still in excessive use, particularly at the provincial level and that the labour regulations were hindering the functioning of formal labour markets and employment. Also, corruption remains a problem and the enforcement of contracts, financial obligations, and bankruptcy law as well as the interpretation of tax laws remained difficult.
In addition, educational and more generally human development indicators remain quite weak in Pakistan, resulting in weak labour force often ill-equipped with the skills necessary for higher value-added productions.
Sources said that the bank believed that there was much room for improving the physical infrastructure of the country and the current state, which contributes to the high costs of doing business.
According to the World Bank, there were some impediments to domestic and foreign investment, especially political and security risks which could not be removed or offset without right economic policies and this should be viewed as a challenge.
The bank also argued that with agriculture still representing close to 25 per cent of the GDP, growth in this sector and in related rural activities needed to be picked up for the objective of significantly higher overall GDP growth rates to be sustained in the near term.
The scope for productivity gains appears to be still large, land remains under-utilised and the market infrastructure in the rural areas remains weak. Recent positive developments, if sustained, could boost the prospects for large productivity gains.
They include greater availability of bank financing for agriculture and the decision to increase the Public Sector Development Programme (PSDP) expenditure.
A productivity enhancing land reform, reduction of government interventions in the development and working of competitive markets in agriculture, and strengthening of research and extension services would increase the prospects for accelerated growth in the sector.
The bank also said that the faster growth in export would make total demand less sensitive to rising domestic real interest rates or indebtedness. It will also help secure productivity gains as a result of competition on the international market, and relax the foreign exchange constraints for imports. The re-tooling efforts have apparently taken place in the textile sector.
Pakistan was expected to gain markets as a result of the removal of quotas - that started in the beginning of 2005 - and as a result of this liberalisation. Only limited progress, the bank observed, has been made towards export diversification, which remains a challenge.
The trade policy in recent years has been supportive but more could be done to reduce the implicit export bias.
Given the size of Pakistan's domestic market, it is not surprising that the limited amount of foreign direct investment has taken place so far compared to other countries of the region.
However, the government continues to claim that achieving an all time high $6 billion plus FDI in 2006-07 was a great achievement and that its efforts will bring more investment during the current financial year.
Sources said that the bank was of the view that prospects for FDI could be enhanced by a broad-based improvement in incomes. The direct foreign investment in labour intensive export sectors, particularly agro-based business and information technology should offer great potential for growth and employment.