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ADB urges Pak to improve business environment

ISLAMABAD — The Asian Development Bank (ADB) has urged Pakistan to improve investment climate and promote better business practices with a view to attracting sizable local and foreign investment in the country.

"There is an urgent need to reduce the number of regulations and regulatory government departments confronting business in Pakistan", it said.

This will, it added, lower the burden of compliance for Small and Medium Enterprises (SMEs) in Pakistan and remove the incentives for firms to remain small and grow laterally instead.

According to ADB's latest Working Paper, prepared by its Pakistan Resident Mission, the ADB has also urged Pakistan to improve law and order and reduce the number of regulations and regulatory departments for carving a better investment climate in the country.

"Law and order problems weaken property rights and as a result, investors' decision to invest. These problems are clearly linked to law enforcement and the criminal justice system, but the results suggest that the issue is complicated by regional politics", the bank stated.The increase in crime and violence in Karachi is largely a consequence of political conflict, the paper added.

The government was advised to rescind unnecessary laws and regulations and that the multiple state agencies with overlapping jurisdiction needed to be reduced.

In critical regulatory areas, the law needed to be revised to reflect current market realities, such as the existence of contract labour and the requirements of flexible labour market operating within a gloablised trade environment.

The Bank also said that international evidence on infrastructure privatisation suggests that Pakistan's current structure of power supply will produce only limited efficiency gains in the absence of strong regulator to look after the public interest and active competition at the generation and distribution levels.

It further stated that the success of infrastructure privatisation in Pakistan depends on the government's ability to enforce its commitment to unbundling and competition. In order to maximise the gains from infrastructure privatisation, the government must invest sufficiently in capacity building at National Electric Authority (Napra). In particular, it should equip NEPRA with the human and technology infrastructure required to regulate power sector.

Talking about accountability and judicial incentives, the bank said," institutional design must alter judges' incentives to make them more accountable and efficient. Generating accurate statistics appears to reduce judicial delays because judges are concerned about their reputation".

The bank is also of the view that there is an urgent need to reduce the compliance costs of general sales tax (GST) export refund and customs duty drawback procedures.

Delays in payment to small and medium size exporters seriously undermine the competitiveness of Pakistan's export sector. One area of concern is tax collectors' tendency to circumvent well-structured legislative provisions and rules at negligible cost to themselves.

Given this incentive structure and its inherent corruption and extortion effects, refund and drawback processes need to be re-engineered to eliminate face-to-face contact between taxpayers and tax collectors, the Bank said.