Reducing regulatory hurdles: Liberalising trade a low priority for most

Considering how much India measures in the Pakistani political consciousness, it is somewhat surprising that liberalisation of trade with the giant of South Asia scarcely gets a mention in the manifestos of major political parties.

In our analysis of reducing regulatory hurdles, we looked at trade with India as a category separate from trade with other countries, because we believe that Pakistan’s economic prosperity and future is dependent very heavily on more liberal economic ties with its eastern neighbour, more so than any other country.

Virtually every manifesto we examined did not directly mention trade liberalisation with India alone as an important political goal. Trade with India was almost invariably mentioned in the broader context of pursuing regional trade agreements.

And the advocacy of free trade, or lack thereof, is where the ideological leanings of Pakistan’s right-wing parties are revealed as being more properly described as pro-business, not pro-free market. Even the PML-N and PTI, both of which exhibit considerable libertarian tendencies with respect to privatisation and deregulation, are not completely convinced that free trade is a good thing.

Even the PML-N, which has the most favourable view of free trade, does not disavow many protectionist policies. And the PTI and PPP are even more openly protectionist in their stances. The MQM and ANP, for their part, do not offer enough detail in their manifestos for any judgement to be made about their stance on free trade.

In addition to trade, we also look at three other measures that reduce regulatory hurdles within the economy and increase intra-Pakistan trade: incentivising and facilitating business registration, making it easier to get licences and permits, and computerising land records.

Each of these three measures would allow businesses to enter the formal economy and the last one in particular (reliable land records) would help far more entrepreneurs gain access to credit which they could use to finance their trade and other commercial activity.

The only parties that offered an explicit pledge to create reliable, computerised land records are all those that rely primarily on urban voters for victory: the PTI, the PML-N and the MQM. All three made that pledge in the context of agricultural land. The PPP hinted that it wants such records to exist, but made no formal promises.

The PPP has also made registration of companies easier during its tenure in office, and indicated in its manifesto that it wants to continue that process. The PTI and PML-N also say they want to reduce the amount of red-tape that entrepreneurs have to go through in order to start and run their businesses.

The PML-N wants to reduce the corporate tax rate, but none of the parties clarifies how it intends to eliminate the perverse incentives in the current tax code, which place a greater burden of taxation on the companies that comply with the most stringent standards of disclosure. In effect, the tax code discourages formalisation of the economy, but none of the parties appears to have a plan to fix that problem.

Published in The Express Tribune, May 6th, 2013

Farooq Tirmizi

CEO, Elphinstone

Farooq Tirmizi is the founder and CEO of Elphinstone, the financial services firm that operates SmartRupee.

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