Judicial delays hamper economic growth

LAHORE: Pakistan’s judicial inefficiencies have trapped trillions of rupees in unresolved disputes, slowing economic activity. Major reforms in commercial courts and dispute resolution mechanisms are essential to unlock this capital and boost investment.

The Federal Board of Revenue (FBR) has approximately Rs3 trillion in pending tax cases, while banks struggle to recover defaulted loans due to prolonged litigation. Non-performing loans (NPLs) in Pakistan surpassed Rs1.1 trillion in 2023, with a significant portion tied up in legal battles. Many companies face payment delays due to unresolved contract enforcement cases, and substantial sums remain locked in land-related litigation, hindering business expansion.

Pakistan’s courts are burdened with a massive backlog, with some cases taking years to resolve. Bureaucratic inefficiencies and the lack of judicial automation further slow dispute resolution. The country ranks poorly in the World Bank’s Ease of Doing Business index for contract enforcement, and political or financial influence sometimes affects judicial decisions.

Efficient financial dispute resolution is crucial for economic stability, investor confidence and business growth. A well-functioning judicial system ensures contract enforcement, as businesses and investors rely on courts to uphold agreements. Delays in justice drive up legal costs, discourage investment and disrupt economic activity. A more efficient judiciary would boost investor confidence, as both domestic and foreign investors seek jurisdictions where disputes are resolved swiftly and fairly. Quicker resolution of loan defaults and financial fraud would also help banks recover debts, reducing non-performing assets.

India’s judicial system, while slow, is relatively better in commercial dispute resolution. Specialised courts such as the National Company Law Tribunal (NCLT) handle corporate disputes, though delays remain a challenge. The Insolvency and Bankruptcy Code (IBC), introduced in 2016, has improved corporate debt resolution but still faces a backlog.

Bangladesh’s judiciary is even slower than those of India and Pakistan, struggling with case backlogs and contract enforcement. Although the country has established commercial courts, delays remain a major issue. The World Bank ranks Bangladesh lower than India in contract enforcement.

Malaysia, by contrast, has one of the most efficient judicial systems in the region for financial disputes. Specialised commercial courts provide fast-track dispute resolution, while transparent and technology-driven legal processes make the country attractive for businesses. Malaysia ranks highest in the region, followed by Indonesia, which struggles with corruption. India is improving but remains sluggish, while Pakistan and Bangladesh lag due to inefficiencies and slow contract enforcement.

Singapore, the UK, and the US have some of the most efficient judicial systems for commercial dispute resolution. Singapore’s courts resolve cases within a few months to a year, with its International Commercial Court (SICC) handling cross-border disputes effectively. Mediation and arbitration are widely used, reducing the burden on courts, while strict deadlines ensure speedy rulings. Singapore ranks among the top countries for contract enforcement in the World Bank’s Ease of Doing Business index.

The United Kingdom is considered a global legal hub, with London courts handling many international commercial disputes. The absence of political interference ensures fair rulings, while the UK’s strong common law system makes it a trusted jurisdiction for business and financial contracts. Arbitration centres like the London Court of International Arbitration (LCIA) play a significant role, with case resolution typically taking one to two years for complex matters.

In the United States, contract enforcement and investor protections are strong. Delaware is a preferred jurisdiction for corporate disputes due to its efficient courts. Arbitration and class-action lawsuits provide alternative legal avenues, but litigation costs can be a barrier. Frequent lawsuits also add complexity, and resolution times range from one to three years, sometimes longer for major corporate disputes. While the US ranks among the best for dispute resolution, the high costs pose challenges for small businesses.

For Pakistan to improve its economic competitiveness, urgent judicial reforms are needed to expedite dispute resolution, reduce backlog and restore investor confidence.