Until the mid-1970s, governments all over the world
(especially in the developing economies), intervened in markets on the
pretext of market failure arising from externalities, decreasing cost
industries, and equity considerations for maximising social welfare. In
Pakistan, where the private sector has played a dominant role, except
probably for the 1970s,1 private sector activities have all along been
regulated through various types of controls and regulations on entry and
exit, prices, credit, foreign exchange, imports, investments, etc. These
regulations were imposed with a view to ensuring that private sector
allocations were in accordance with the national priorities [see
Pakistan (1983-84)]. However, the objectives were rarely realised and,
in fact, these regulations have been responsible for red-tapism and
corruption. On the grounds of government failure, privatisation and
deregulation policies are being practised almost everywhere in the hope
that they would help in efficient allocation of resources and higher
levels of productivity. Considerable regulatory reforms have also been
effected in Pakistan over the last two decades. Investment and import
licensing have been withdrawn, most of the foreign exchange restrictions
have been removed, capital market regulations have been simplified,
price controls have been lifted, and interest rates have been
deregulated. However, there is considerable room for further regulatory
reforms. Similarly, various public enterprises in the manufacturing and
financial sectors have been privatised, telecommunication, airlines, and
energy firms have been partially divested, and the government has an
ambitious privatisation programme of divestiture in various other
fields. The main force behind the process of privatisation is the need
to address the problems of mismanagement of resources, overstaffing,
inappropriate and costly investments, poor quality of services, and
heavy losses of various public enterprises.
Banks’ Holdings of Government Securities and Credit to the Private Sector in Emerging Market and Developing Economies