2014 Index of Economic Freedom

Pakistan

overall score55.2
world rank126
Rule of Law

Property Rights30.0

Freedom From Corruption22.7

Limited Government

Government Spending88.3

Fiscal Freedom80.6

Regulatory Efficiency

Business Freedom69.4

Labor Freedom47.3

Monetary Freedom68.5

Open Markets

Trade Freedom64.8

Investment Freedom40.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 178.9 million
  • GDP (PPP):
    • $515.4 billion
    • 3.7% growth
    • 3.0% 5-year compound annual growth
    • $2,881 per capita
  • Unemployment:
    • 7.7%
  • Inflation (CPI):
    • 11.0%
  • FDI Inflow:
    • $846.7 million
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Pakistan’s economic freedom score is 55.2, making its economy the 126th freest in the 2014 Index. Its score is essentially the same as last year, with modest improvements in investment freedom and monetary freedom largely offset by deteriorations in freedom from corruption, business freedom, and trade freedom. Pakistan is ranked 26th out of 42 countries in the Asia–Pacific region, and its overall score is below the world and regional averages.

Over the 20-year history of the Index, Pakistan’s economic freedom score has declined by over 2 points. Scores have deteriorated in five of the 10 economic freedoms, including property rights, investment freedom, and financial freedom. Most notably, a 40-point decline in property rights has severely undermined Pakistan’s performance in the rule of law. Pakistan’s economy has consistently been rated “mostly unfree.”

Social and political instability undercuts meaningful progress toward a stable macroeconomic environment. Corruption, endemic throughout the economy, remains a serious drag on long-term economic development. The overall regulatory environment continues to be affected by convoluted administrative bureaucracy, and there is little commitment to opening markets.

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Background

The victory of the Pakistan Muslim League/Nawaz party led by two-time Prime Minister Nawaz Sharif in the May 2013 elections represents a boost for civilian as opposed to military control, but the two power centers will continue to jockey for control as the nation faces terrorism, sectarian violence, and a well-organized insurgency along the border with Afghanistan. U.S.–Pakistan relations started to recover in late 2012 from an all-time low after the May 2011 U.S. raid that killed Osama bin Laden and a November 2011 NATO air strike that accidentally killed 24 Pakistani soldiers. Pakistan has privatized some state-run industries, but the economy is still heavily regulated, and the security situation discourages foreign investment. Other problems include increasing energy shortages and rising food prices.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 22.7 Create a Graph using this measurement

Pakistan’s government operates with limited transparency and accountability. Corruption is pervasive at all levels of politics and the bureaucracy, and oversight mechanisms to ensure transparency remain weak. Hundreds of politicians, diplomats, and officials have been granted immunity in ongoing corruption cases. Property rights are not protected effectively. The legal system performs poorly.

Limited GovernmentView Methodology

The top individual income tax rate is 25 percent, although salaried employees are subject to a lesser rate. The top corporate tax rate is 35 percent. Other taxes include a general sales tax (GST) and an interest tax. The overall tax burden is 9.3 percent of domestic output. The government has been tightening spending to qualify for IMF funding, and spending is now 20 percent of GDP. Public debt equates to 62 percent of the domestic economy.

Regulatory EfficiencyView Methodology

Starting a business takes an average of 21 days, but no minimum capital is required. Completing licensing requirements still costs almost twice the level of average annual income. The labor market remains stagnant. A large portion of the workforce is underemployed in the informal sector. The government controls fuel prices but was taking steps in 2013 to reduce its substantial subsidies for electricity.

Open MarketsView Methodology

The average tariff rate is 10.1 percent. Imports of agricultural and manufactured products may face additional non-tariff barriers. Economic uncertainty has discouraged foreign investment. The financial sector, dominated by commercial banks, remains vulnerable to state interference. Large segments of the population and small businesses still do not use banking services, and lending to individuals accounts for only 9 percent of private-sector credit.

Country's Score Over Time

Bar Graph of Pakistan  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Pakistan  to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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