Pakistan’s regulatory system is fundamentally structured around pre-approvals and discretion, creating high-cost and uncertainty in operations. Businesses must navigate multiple overlapping agencies for routine approvals, with formal sector participants bearing a disproportionately heavy burden. This structural inefficiency is a key factor behind Pakistan’s low private investment levels (11–13% of GDP) compared to regional peers (18–22%). This report undertakes to unbundle the gaps in the government’s ongoing reform efforts.

The report finds that regulatory friction is most severe after business entry, embedded across the day-to-day operating lifecycle. Three systemic issues persist: fragmentation across agencies, partial or manual processes, and discretionary enforcement. Digitization efforts have largely failed to address the core issue because they focus on application intake and tracking, while final approval decisions remain manual, perpetuating uncertainty and opportunities for rent-seeking.

Beyond what can be measured, the regulatory burden is broader and more complex. Businesses face duplicative NOCs, lengthy product registrations across jurisdictions, repetitive licensing requirements, and a slow judicial system with no predictable timelines for dispute resolution. These hidden frictions significantly increase the cost of compliance and discourage formalization.

Stakeholder interviews across sectors confirm a consistent pattern: regulatory complexity, policy instability, uneven enforcement, delayed refunds, and restrictions on capital flows are among the most binding constraints. Additional burdens—such as opaque security clearance processes and discretionary controls over royalty and technical payments—further undermine investor confidence. Importantly, businesses are not seeking deregulation but rather clear, stable, and fairly enforced rules.

International experience shows that effective reform lies in simplification, risk-based regulation, and full-cycle digitization. Countries such as Malaysia, Vietnam, and Indonesia reduced compliance burdens by centralizing approvals, introducing risk-tiered systems, and ensuring that digitization includes automated decision-making, not just process management.

Pakistan has initiated reforms through the Asaan Karobar Act 2025 and the Pakistan Regulator Reforms 2025 program, which have introduced institutional mechanisms and reduced some compliance costs. However, progress remains constrained by limited scope and weak execution, with only 16% of proposed reforms completed. Critical areas such as tax administration, judicial processes, and enforcement practices remain largely unaddressed.

The report identifies three key gaps: reforms are procedural rather than structural, execution is weak, and digitization is incomplete. To address these, 17-point reform agenda is proposed across four areas: structural simplification, transparency and predictability, market facilitation, and enforcement fairness. These reforms are sequenced into three implementation tiers—immediate administrative actions, inter-agency coordination measures, and longer-term legislative changes.

In conclusion, Pakistan’s challenge is no longer diagnosing regulatory inefficiencies but implementing reforms effectively and addressing core cost drivers. Without improving the post-entry business environment—particularly in taxation, trade facilitation, and dispute resolution—Pakistan is unlikely to achieve the investment levels required for sustained economic growth.

Download