Ease of Doing Business Index – Pakistan

Pakistan is ranked 108 in the World Bank (WB) recently updated Ease of Doing Business Index, an improvement of 28 from the previous rank of 136.

The one achievement that the PTI government can claim for itself in this troubling  environment, is the improvement in the ease of doing business index. So, what actually does this means, does this mean that our golden economic days have started, will there be flood of foreign direct investment (FDI) flowing in from all around the world. If you think so, then you are being overly optimistic. Let’s first understand what actually the ease of doing business index means and how is it calculated.

Origin

The history of the ease of doing business index goes back to 2002 when Simeon Diankov (a Bulgarian economist) along with his fellow colleagues published a paper called “The Regulation of Entry” in the Quarterly Journal of Economics. The paper concluded that heavier entry regulations favors politicians and bureaucrats and results in corruption, whereas countries with more democratic and limited governments have lighter regulation of entry that results in lesser chances of corruption. The phenomena became popular and appealing and the countries started launching reforms to improve their entry process. World Bank started collecting these facts and data and started publishing them every year.

Methodology

The index is based on the 10 topics across around 190 economies. The topics covered are as follows:

  • Starting a business
  • Dealing with construction permits
  • Getting electricity
  • Registering property
  • Getting credit
  • Protecting minority investors
  • Paying taxes
  • Trading across borders
  • Enforcing contracts
  • Resolving insolvency

Inputs are collected across economies via questionnaires from local experts including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals advising on legal and regulatory requirements. The questionnaire is followed up with interaction by the Doing Business Team, involving conference calls, written correspondence and visits by the teams. The data is verified and revised where required.

Pakistan

In the latest update published by World Bank on October 24, 2019, Pakistan ranking has improved from 136 to 108 where the Doing Business Score has improved from 55.5 to 61. Pakistan has made progress on 6 topics, no progress in 3, and decline in 1.

Topics DB Rank Change in DB Score
Starting a business 72 7.4
Dealing with construction permits 112 14.6
Getting electricity 123 20.9
Registering property 151 5.8
Getting credit 119
Protecting minority investors 28
Paying taxes 161 5.9
Trading across borders 111 1.3
Enforcing contracts 156
Resolving insolvency 58 (0.9)
Overall 108 5.5

Some of the reforms introduced by the Pakistan that contributed in the improvement in the score are as follows:

Starting a Business: Pakistan made starting a business easier by expanding procedures available through the online one-stop shop. This reform applies to both Karachi and Lahore. Furthermore, Pakistan (Lahore) abolished the Labor Department registration fee.

Dealing with Construction Permits: Pakistan (Karachi) made obtaining a construction permit easier and faster by streamlining the approval process and also made construction safer by ensuring that building quality inspections take place regularly. Pakistan (Lahore) also made obtaining a construction permit easier and faster by streamlining the approval process and by improving the operational efficiency of its one-stop shop for construction permitting.

Getting Electricity: Pakistan made getting electricity easier by enforcing service delivery time frames and by launching an online portal for new applications. Pakistan also increased the transparency of electricity tariff changes. This reform applies to both Karachi and Lahore.

Registering Property: Pakistan (Karachi) made property registration faster by making it easier to execute and register a deed at the Office of the Sub-Registrar. Pakistan (Lahore) made registering property easier by increasing the transparency of the land administration system.

Paying Taxes: Pakistan made paying taxes easier by introducing online payment modules for value added tax and corporate income tax, and less costly by reducing the corporate income tax rate. This reform applies to both Karachi and Lahore.

Trading across Borders: Pakistan made trading across borders easier by enhancing the integration of various agencies in the Web-Based One Customs (WEBOC) electronic system and coordinating joint physical inspections at the port. This reform applies to both Karachi and Lahore.

The ranking of different cities of Pakistan surveyed are as follows:

Economy Ease of Doing Business Rank
Faisalabad 1
Multan 2
Lahore 3
Islamabad 4
Sheikhupura 5
Gujranwala 6
Sukkur 7
Peshawar 8
Karachi 9
Rawalpindi 10
Sialkot 11
Quetta 12
Hyderabad 13

Astonishingly, Karachi (the business hub of Pakistan) is ranked 9th in among the 13 cities being surveyed. Major contributor to this dismal ranking is caused by tax payment mechanism, property registration and getting construction permits.

Way forward

The improvement in the Ease of Doing Business Index is an encouraging and specially when you see that we are better than Brazil (ranked 124) and Bangladesh (ranked 168) which are among the fastest growing/emerging economies of the world.

How to build on this? Is this the end of the world? Certainly not.

A lot is still to be done and can be done specially in the area taxation, contract enforcement and property registration. There are lots of bold and positive steps are been taken by the new government such as hiring good professional specialists such as Mr. Shabbar Zaidi as Chairman FBR. However, lots more to be done. The use of technology and one window solutions are the need of the time to ensure lowering cost of compliance, fast track business transactions and maintaining audit trails for quicker resolution of commercial disputes.

 

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