Pakistan dropped to 136 out of 189 countries on the World Bank’s Doing Business 2019 ranking. However, it made a tremendous improvement, jumping to 108 in the 2020 ranking. To place the economy on the path of sustained growth and economic stability, the Government took immediate steps. Monetary tightening, market-determined exchange rate, expenditure control, broadening of the tax base and changes to the commerce policy are among the many steps which were taken.
In addition to this, the Government enrolled into IMF’s Extended Fund Facility ($6 billion) to improve the economy. Moreover, financial support from friendly countries helped Pakistan move towards economic stability. Also, the Government continues to introduce reforms for the improvement of the economy. The aim is to change Pakistan into a land of opportunities instantly.
Reforms Undertaken by Pakistan
Does Improvement in Ranking Translate into a Better Economy?
The answer is unclear. There is a lot of criticism about the ranking and how it works. The following paragraphs discuss why the ranking is not a game-changer for Pakistan’s economy.
Case of France
In the 2004 Report, France found itself at 44th place. It resulted in a lot of criticism. Why? Countries like Bostwana and Jamaica were ahead of France! The report is criticized for what was an inadequate understanding of the French legal and regulatory frameworks. Also, the World Bank’s ‘one size fits all‘ approach to rank each country proved disastrous. And the report showed a preference for common law over civil law.
Common law bases itself on published judicial opinions. On the other hand, civil law refers to codified statutes. The WB shows an inherent bias towards civil law, considering common law as the best. Whereas, civil law results in over-regulation, lengthy litigation, high unemployment, corrupt practices and lower investment among many other drawbacks. But, there is no evidence to prove this stance. In contrast, it only reflects an inherent bias among the makers of the report.
Independent Evaluation Group (2008)
The criticism of the ranking does not end with France. An Independent Evaluation Group within the WB pointed out shortcomings in the ranking system. The indicators used in the ranking system link to research which relates the regulatory environment to firm performance. Ultimately, it connects to macroeconomic outcomes. However, the research used to justify these indicators is only partial. Hence, it does not present a full picture. Also, the influence of other determinants is not carefully catered in the research or the indicators.
But, it will be wrong to say that all research is partial. There are various researches which show that there is a strong positive correlation between regulatory environment and firm performance. However, the policy implications must be carefully analysed before basing all decisions on such research. For example, consider the phrase ‘one man’s terrorist is another man’s freedom fighter‘ but in the economic context. A regulatory framework may be beneficial to one or more firms, but it may be detrimental to other firms, the economy or society.
Likewise, effectiveness of one regulatory framework cannot be generalised to other countries. The market conditions, local conditions, political choices and other factors vary from country to country. Therefore, a single index cannot rightly measure each country’s regulatory effectiveness. Apart from this, the sources from which the data is derived are too small. Also, in many cases, the data is gathered from a single or a maximum of two firms. For example, information on taxes and the resulting methodology are from an only firm.
Independent Review Panel (2013)
The report raised the following issues:
- The report can be easily misinterpreted;
- The sources from which information is derived is too small;
- Methods of data collection are faulty:
- Only those categories are taken into account which the WB ranking can measure adequately; and
- The report does not specify how countries can respond to these rankings.
Also, the whole process of ranking is value-laden. The ranking bases itself on WB’s assumption of what is best for doing business. In its words,
‘The act of ranking countries may appear devoid of value judgement, but it is, in reality, an arbitrary method of summarising vast amounts of complex information as a single number’.
Doing Business 2020 Report
Below are the rankings of a few selected countries which help explain this point a little better.
Pakistan’s economy is $312 billion, whereas Nigeria’s is $397 billion. Surprisingly, Nigeria is ranked well below Pakistan in DB 2020 ranking at 131 place. Likewise, China is the world’s second-biggest economy. But it sits at the 31st place. Even Kazakhstan ranks above China. In addition to this, Brazil has a $2 trillion economy. Nevertheless, it ranks lower than Sri Lanka which is a $87.7 billion economy. The point is that better rankings do not necessarily mean a better economy.
Pakistan Still Has a Long Way to Go
Changes to laws or regulatory framework are not necessarily the right thing to do. Instead of focusing on what works for others, Pakistan must keep its ground realities in mind before making any decision. Lastly, the ranking is nothing but a Western concept of how things must be. The rankings are undoubtedly good for the Government’s image. But they do little to benefit the economy or society in general. And, anyone wanting to invest in Pakistan will naturally be looking at a lot more than just the rankings.