Extensive government involvement in the national economy is one of the biggest reasons for poor GDP growth in Pakistan, according to a study by the Pakistan Institute of Development Economics (PIDE).
The report was launched on Wednesday. VC PIDE Dr. Nadeemul Haq was the chief guest while Deputy Chairman of the Planning Commission Dr. Mohammad Jehanzeb Khan and Special Secretary of the Ministry of Commerce Sarah Saeed attended the event.
The study urged an immediate shift away from “absolute policies” on import substitution and export promotion. It argues that the government’s involvement in +70% of economy-related activities stifles market development and overall growth. The cost of regulation, estimated at over 60 percent of the GDP, was highlighted as a significant burden affecting segments constituting more than half of the GDP.
The study emphasized the need for Pakistan’s commerce and industry to integrate into the global value chain, criticizing the current strategy of isolating itself from global markets through market fragmentation.
The study identified a systemic failure to diversify across manufacturing, exports, and domestic markets. It highlights the shortcomings of the import substitution policy, exemplified by the Mobile Phone Manufacturing Policy, 2020.
Ir proposed deregulation in markets like real estate, and improvements in tax documentation to attract large multinational businesses. However, the report notes that the government’s reliance on borrowing and external lenders for policy decisions is a major obstacle.
On the international trade front, the report points out obstacles such as high tariff cascading, slow progress in advancing up the export product value chain, and limited export destinations. Urban design, zoning regulations, and city planning negatively impact businesses in Pakistan, it added.
The study mentions the dominance of family-owned businesses in the stock market affecting market efficiency.
At the launch event attended by Deputy Chairman of the Planning Commission Dr. Mohammad Jehanzeb Khan acknowledged PIDE’s role in spearheading research for the nation’s immediate needs.
Special Secretary Commerce Ministry Dr. Sara Saeed commended PIDE’s efforts in conducting the study. She suggested that the government set up a separate domestic commerce department and enhance coordination between federal and provincial governments to shape policies supporting the external trade sector and domestic commerce.
