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Stabilizing Pakistan: Boosting its Private Sector

Introduction

As it struggles to contain a growing insurgency, Pakistan has aroused concern that it is a failing or fracturing state. One aspect of the international community's response has been to place new focus on Pakistan's economic weaknesses. On completing his first hundred days in office, U.S. President Barack Obama acknowledged that the Pakistani government was "fragile" and lacked capacity to deliver basic services to its people, making it difficult for them to gain support of the population. "So we need to help Pakistan help Pakistanis," he said.

The Obama administration is seeking a strong economic aid package, and joined an international donor conference in April that pledged more than $5 billion in aid and loans to Pakistan. In November 2008, the International Monetary Fund (IMF) saved the country from defaulting on international debt with a $7.6 billion loan. Yet the private sector is seen as essential to any effort to shore up the Pakistani state.Experts say special emphasis should be placed on boosting trade with Pakistan; investing in developing its energy, water, and transport infrastructure; and making economic aid programs more transparent.But an uncertain political climate and unwillingness to risk long-term investments have so far limited engagement with the private sector.

Challenges of Doing Business

Pakistan's real gross domestic product (GDP) grew at 6 percent in 2008 and GDP per capita was estimated at about $2,600. But the IMF outlook for 2009's GDP growth is just 2.5 percent. The World Bank ranks Pakistan second in the South Asian region after Maldives on its Ease of Doing Business Index for the private sector. But infrastructural constraints,corruption, weak intellectual property rights, and a feudal system of land distribution are some of the major bottlenecks preventing a more effective and vibrant private sector...

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