ISLAMABAD: The regulatory agencies in the country have become a burgeoning industry negatively affecting more than half of the national economy, says a new report by the Pakistan Institute of Development Economics (PIDE).

“The cost of regulation, estimated at over 60 per cent of GDP, particularly affects segments larger than 50pc of the GDP, turning regulation agencies into a burgeoning industry in Pakistan,” according to the report, titled “The State of Commerce in Pakistan — International and Domestic”, released here on Wednesday.

The current strategy involves market fragmentation and deliberate distancing from the global value chain. This approach, however, may need to be reevaluated to ensure sustainable economic growth, says the report.

PIDE has presented proposals to the government for deregulation, specifically targeting markets, such as real estate and improvements in tax documentation to foster the creation of large multinational businesses. However, the government’s preoccupation with borrowing and reliance on lenders to decide policy remains a significant challenge.

PIDE report explores challenges, opportunities shaping landscape of commerce sector

The report explores the challenges and opportunities shaping the landscape of the commerce sector. It sheds light on the current state of commerce in the country.

Addressing the launching ceremony of the report at the Planning Commission, PIDE Vice Chancellor Dr Nadeemul Haque said the institute had prepared this report for the Ministry of Commerce and Industries to explore all facets of internal and external trade in Pakistan.

The primary objective was to gain a profound understanding of markets, growth and international and domestic trade, he emphasised, adding that despite being vibrant, the sector faces challenges stemming from governments’ indifference, regulatory problems and various other problems.

Dr Haque highlighted the growth potential of several entities within sectors such as construction, retail, chain stores, food, franchises and transport. He said PIDE’s research shows that the government’s footprint on the economy is at over 70pc, with heavy-handed involvement in trade and markets, stifling market development and growth.

More specifically, the report recommends a broader discussion on an immediate cessation of absolute policies on import substitute and export promotion could be discontinued. “Our commerce and industry must develop as part of the global value chain.”

According to the report, there is a systemic failure to diversify across manufacturing, exports and domestic markets. Notably, the import substitution policy, exemplified by the Mobile Phone Manufacturing Policy 2020, has fallen short of its targets. Despite the significant contribution of domestic commerce to formal and informal employment and GDP, this sector has been historically overlooked in policymaking, with the first domestic commerce policy formulated only in 2021, it says.

On the international trade front, the report highlights obstacles such as high tariff cascading, minimal progress in moving up the export product value chain, and limited destination diversification.

Published in Dawn, December 21st, 2023