Economic freedom of Pakistan improves: Heritage Foundation report


Pakistan’s economic freedom overall score has improved by 0.6 percent with higher scores for judicial effectiveness and property rights outpacing modest performance in monetary freedom and fiscal health.

According to a report compiled by Washington-based Heritage Foundation, Pakistan’s economic freedom score is 55 and its economy is the 131st freest in the 2019 index.

Pakistan is ranked 32nd among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages, the report added.

At global level Hong Kong, Singapore and New Zealand are the top three ranked countries at the world economic freedom index.

In South Asia, Bhutan is ranked at 78, Sri Lanka 115, Bangladesh 121, India 129, Pakistan 131, Nepal 136, Maldives 141, and Afghanistan is at 152.

The report said that although some aspects of economic freedom had advanced modestly in Pakistan in recent years, decades of internal political disputes and low levels of foreign investment had led to erratic growth and underdevelopment.

Excessive state involvement in the economy but omnipresent regulatory agencies inhibit private business formation. Lack of access to bank credit undermines entrepreneurship, and the financial sector’s isolation from the outside world slows innovation.

The foundation defines economic freedom as “the fundamental right of every human to control his or her own labour and property.”

The report pointed out that in economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

The report argues that in an economically free society, “individuals are free to work, produce, consume, and invest in any way they please”.

The foundation measures economic freedom by assessing the rule of law, government size, regulatory efficiency and access to open market. The data is shared with investors, business and finance leaders, policymakers, academics, journalists, students, and teachers.

The report added that the tax system of Pakistan is complex despite reforms to cut rates and broaden the tax base. The top personal income tax rate is 30 percent, and the top corporate tax rate has been cut to 30 percent. The overall tax burden equals 12.4 percent of total domestic income.

Over the past three years, the government spending has amounted to 20.3 percent of the country’s output (GDP), and budget deficits have averaged 5.1 percent of GDP.

Progress in improving the entrepreneurial environment as been modest. The government’s 2018–2019 budget increased spending on subsidies for the construction sector and for such items as food (especially sugar), power, water, and textiles by 36 percent.

The combined value of exports and imports is equal to 25.8 percent of GDP. The average applied tariff rate is 10.1 percent.
As of June 30, 2018, according to the WTO, Pakistan had 66 non tariff measures in force.

Excessive state involvement in the economy and restrictions on foreign investment are serious drags on economic dynamism. About 25 percent of adult Pakistanis have access to an account with a formal banking institution, the report added.