Until 2010, Bangladesh was a laggard in South Asia region. Its per capita income was about half of Pakistan's. Now Bangladesh has surpassed Pakistan as the Pakistani economy has suffered significant slow-down from the previous decade. In fact, the Pakistan economy grew at the slowest rate in South Asia as reflected in per capita incomes. However, the income inequality in Pakistan continues to be the lowest in South Asia. 

Per Capita Income Growth in Pakistan Lags in South Asia. Source: Wo...

Lower income inequality in Pakistan is reflected in its abysmal domestic savings and investment rate of around 10% of GDP. It shows in Pakistan's lower economic growth rate compared to Bangladesh and India. The distribution of national income in a country is a key socioeconomic variable with broad economic and societal implications. Income inequality and wealth inequality are related because the flow of income determines savings and investments, which in turn determine GDP growth and accumulation of wealth. An economic model offered by Galor and Zeira predicts that the effect of rising inequality on GDP per capita is negative in relatively rich countries but positive in poor countries like Pakistan.

Investment as Percentage of GDP Source: State Bank of Pakistan 
 
While Pakistan's per capita income more than doubled from $500 to $1,000 in the ten years 2000 to 2010, the growth has slowed to less than 30% from 2010 to 2020. Faster GDP growth in the decade of 2000-2010 was partly the result of significant increase in Pakistan's savings and investment rates.  Meanwhile, rising worker remittances from overseas Pakistanis have been boosting Pakistan national savings rate and helping reduce current account deficits
Savings Rate in Pakistan. Source: Dawn

Pakistan also saw rapid economic growth in the 1960s in spite of low domestic savings rate. This can be explained by foreign development aid of as much as 10% of GDP that Pakistan received in that decade.


Foreign Aid to Pakistan as Percent of GDP Source: World Bank


Pakistan's exports doubled from $10 billion to $20 billion in years 2000-2010. In the last decade 2010-2020, the nation's exports have grown only about 25% to $25 billion. Exports have declined in terms of percentage of the country's GDP from 13% to 10% in the most recent decade. . 

Pakistan Exports Since Year 2000. Source: World Bank

 

Return on money invested in Pakistani stock market has also been cut in half in 2010-2020 when compared with the return in 2000-2010.  Shares of companies making up the Karachi Stock Exchange 100 index have returned 8% in US$ terms in 2010-2020, less than half of the 20% during 2000-2010 period. KSE100 still managed to achieve 14% return over the 20-year period from 2001 to 2021, among the highest in the world. 


Stock Market Returns. Source: Tundra 


Foreign direct investment (FDI) in Pakistan ramped up in 2000-2010, reaching the peak of $5.6 billion (3.67% of GDP) in 2007. FDI inflow has since suffered a steep decline.

Foreign Direct Investment in Pakistan. Source: World Bank

Pakistan FDI inflows have significantly lagged behind those of the rest of South Asia.

FDI Inflows in Pakistan. Source: World Bank

Pakistan's manufacturing output tripled from $7 billion in 2000 to $21 billion in 2010. Then it rose just 60% to $34 billion in 2019. The nation's industrial output declined as percentage of GDP from 14% to 12% in the last decade, according to the data from UNIDO, the United Nations Industrial Development Organization. 

Pakistan's Manufacturing Output Trend Since 2000. Source: World Bank

Pakistan's literacy rate has been flat at about 59% in the last decade (2010-2019) after substantial rise from 45% to 55% in the decade of 2000-2010. 

Pakistan Literacy Rate. Source: World Bank

The net primary enrollment rate in Pakistan jumped from 55% in 2000 to 65% in 2010. The progress on this metric slowed as it increased just two percentage points to 67% in 2019. 


Net Primary Enrollment Rate in Pakistan. Source: World Bank

Pakistan has seen a major decline in the rate of human development growth in the country over the last decade. Pakistan saw HDI (Human Development Index) average annual growth of 1.4% in 2000-2009 and 0.80% in 2010-2019, according to Human Development Indices and Indicators 2018 Statistical Update.  The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018.

Pakistan Human Development Index Growth Rate. Source: Human Develop...


Bangladesh surpassing Pakistan in socioeconomic indicators has brought into sharp focus the contrast between Pakistan's decades of 2000-2010 and 2010-2020.What changed? The biggest change is Bangladeshi leader Shaikh Hasina's decision to stifle the unruly Opposition and the media to bring political and economic stability to the South Asian nation of 160 million people. It has eliminated a constant sense of crisis and assured investors and businesses of continuity of government policies. With development taking precedence over democracy, Shaikh Hasina followed the example of Asian Tigers  by focusing on export-led economic growth of her country. She incentivized the export-oriented garment industry and invested in human development. Bangladesh now outperforms India and Pakistan in a whole range of socioeconomic indicators: exports, economic growth, infant mortality rate, primary school enrollment, fertility rate and life expectancy.       

South Asian Countries' Export Growth. Source: Wall Street Journal

Bangladesh's garment exports have helped its economy outshine India's and Pakistan's in the last decade. Impressed by Bangladesh's progress, the United Nations’ Committee for Development Policy has recommended that the country be upgraded from least developed category that it has held the last 50 years. 

The next challenge for Bangladesh is to move toward higher-value add manufacturing and exports, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995, according to the Wall Street Journal

Pakistan Growth By Decades. Source: National Trade and Transport Fa...

 

Vietnam ruled by autocrats is rapidly becoming an Asian Tiger. With rising manufacturing costs in China and the US-China trade war,  many major manufacturers are relocating to other countries in Asia. This situation has helped Vietnam emerge as a hub of foreign direct investment (FDI). FDI flow into the country has averaged more than 6% of GDP, the highest of any emerging economy. The country’s recent economic data shows a rise of 18% in exports, with a 26% jump in computers/components exports and a 63% jump in machinery/accessories exports.  These figures have earned Vietnam the moniker of the newest "Asian Tiger".

Musharraf Years & History of Pakistan's GDP Growth Rates. Sourc... 
 
It was in 2007 that Pakistan caught the "democracy" fever led by the lawless lawyers of Lahore. This led to the return of corrupt dynastic rule of Asif Zardari and then Nawaz Sharif. The year 2007 also marked the beginning of yet another lost decade that saw Pakistan's per capita gdp's continuing lag behind South Asia region and other emerging economies. 
Pakistan was the original "Asian Tiger" back in the 1960s when  other developing Asian economies sought to emulate its development model. It became an export powerhouse in the 1960s when the country's manufactured exports exceeded those of Thailand, Malaysia and Indonesia combined.  The creation of major industrial estates in Karachi under President Ayub Khan's industrial policy incentivized industrial production and exports of value added manufactured products such as textiles. Now the country's industrial output lags its neighbors'. 
History of Pakistan's Manufactured Exports

With Chinese looking to relocate some of their industrial production to low-cost countries, Pakistan has a golden opportunity to grow its industrial output and exports again. Here's Karen Chen explaining why:
“Vietnam is too crowded already and moved into automobiles and electronics. There is no space for investment in Vietnam. Myanmar doesn’t have infrastructure. India is terrible. In Bangladesh you don’t have right conditions for setting up fabric units. So Pakistan is the ideal location for such garment manufacturing because of abundance of cheaper labour. The investment and tax policies for SEZs and new projects are also good. We’ve confidence to be at here.”
Seizing the opportunity to attract export-oriented investors will help Pakistan become the next Asian Asian Tiger economy. It will help the country avoid recurring balance-of-payments crises that have forced the nation to seek IMF bailouts with all their tough conditions. Focusing on "Plug and Play" Special Economic Zones (SEZs) is going to be essential to achieve this objective.

Views: 91

Comment by Riaz Haq on April 21, 2021 at 7:41am

Economy to stay in low growth spiral: think tank

https://www.dawn.com/news/1619415/economy-to-stay-in-low-growth-spi...


Despite the apparent short-term control over current account deficit (CAD), the government’s policies suggest Pakistan’s economy is to stay in the low growth, low export and close to default position, a report issued on Tuesday by a think tank said.

The Institute of Policy Reforms (IPR), a think tank led by PTI leader Humayun Akhtar, in its latest report on foreign aid and purpose advised that the government should slow down foreign borrowing instead of trying to grab every opportunity to procure more foreign loans.

It said the government has controlled the CAD at present but “the respite is precarious and likely short lived”. All indications suggest “the economy would stay in its present state of low growth, low exports, and close to default”, it added.


The IPR report anticipated further devaluation of the rupee or a more restrictive monetary policy and even more increase in administered prices. If all of that happens, the cure may turn out to be worse than the disease, the report said, adding the people of Pakistan were paying a huge cost for years of poor economic management.

IPR advises govt to slow down foreign borrowings

The most critical problem faced by Pakistan’s economy is repayment and servicing of external debt and years of ill-advised financial management has brought this stage. In the last ten years, external debt servicing (principal and interest) has ranged between one per cent of GDP in FY14 to almost 5pc of GDP in FY20. Remitting such large sums of money overseas without drawing any productive benefit from it, is a loss to the economy.

In FY20, principal and interest paid to Rs2.3 trillion to foreign creditors – almost twice the Rs1.2tr amount spent on all development, federal and provincial. Just interest paid to foreign creditors stood at Rs406 billion – one-third of total development.

New external loans, often at high commercial rates, are taken to service past debt, a solution fraug1ht with risks, but one that has become especially acute in recent years. “In essence, the economy is in a debt trap,” the report underscored.

In addition, Pakistan remits over 0.5pc of GDP in foreign direct investment (FDI) profits annually. While this is a necessary part of FDI, these are not export oriented investments. Remittance of profits adds to forex squeeze.

Also, in FY 19 and FY 20, outflow of foreign private funds invested in Pakistan government’s debt instruments amounted to $1,002 million and $241 million, respectively. This debt was incurred at a very high cost of up to 13pc. “Pakistan must end its preference for accessing any available foreign fund regardless of interest cost,” the report said, adding the country must take a deep look at its public fiscal management, i.e., how it raises funds (revenue and debt) and what it spends that money on.

In the last twenty years, Pakistan has paid external creditors more than it has received from them. Yet its external debt has grown by over 200pc from $37.2bn in FY01 to $112.9bn in FY20. We may have paid back the original loan more than once and still owe it to the creditor, the think tank noted.

Between FY01 and FY20, external debt disbursed to Pakistan totalled $112.6bn. During the same period, it has paid to foreign creditors a sum of $117.9bn in principal and interest. That is, it has paid back $5.2bn more than it received, a negative resource transfer. Of the $117.9bn paid, $90.6bn was principal, and $27.2bn was interest. Average annual interest paid was US $1.4bn. This is the result of borrowing to service past debt and the effect of compounding, which makes even concessional credit expensive. As a result, most solvency and liquidity indicators have worsened in recent years.

Comment by Riaz Haq on April 21, 2021 at 8:01am

Pakistan performed better than India in apparel exports to the United States in February 2021.

https://tribune.com.pk/story/2295846/pakistan-beats-india-in-appare...

Pakistan had an outstanding performance among apparel export destinations globally during February, according to Sourcing Journal, a credible source for textile sector information.

“We were the only main exporter with increased apparel supply to America during Covid-19,” said Adviser to PM on Commerce Abdul Razak Dawood in comments to The Express Tribune.

Pakistan was on top position in the list of countries that export textile, according to a report released by Apparel Resources, another international platform that gives insights into apparel industry exports.

Normally, India and Bangladesh perform better than Pakistan but this time Pakistan has fared better than its neighbouring countries despite all the challenges of Covid-19 faced worldwide.

Although the apparel import value of the US, a prominent destination for textile exports, decreased 8.7% year-on-year to $5.39 billion in February 2021, its volume increased 3.2% and Pakistan was on top of the list of countries which witnessed a hike in their apparel exports.

Other countries that recorded growth in exports included China, Bangladesh and Egypt. Pakistan and China managed to increase their apparel shipments to the US both in terms of value and volumes.

“Pakistan is showing the world that we are a reliable supply destination,” Dawood emphasised.

India, Vietnam and Indonesia experienced a decline in apparel exports to the US both in value and volume terms.

The PM aide added that government policies for the textile industry played a significant role in exports. “Our vision is to promote ‘Make in Pakistan’,” Dawood remarked.

Even though the country is performing well in textile exports, it is facing many challenges to keep up with the performance. The biggest hurdle is the decrease in cotton production in the country, which is the main raw material for the textile sector.

The country is facing shortage of around half of its requirement of cotton, estimated at seven million bales. Giving in to the pressure from the textile industry, the government recently allowed duty-free import of cotton yarn.

During the pandemic, the medical segment of textile industry such as bed wear also grew as bed sheets were discarded frequently, said DH Corporate Research Lead Karim Punjani.

After coronavirus, the world learnt the lesson regarding supply chain sustainability, which indicated that no country should rely on only one destination for imports, he said.

“Countries now want to diversify their supply chain and this is a good chance for Pakistan to grab its share in countries which imported products from other countries previously,” the analyst added.

“This will be a challenge for Pakistan; either it increases exports through existing companies or helps new players to venture into this sector.”

Through its policy, Pakistan can encourage foreign direct investment in this sector by inviting companies to move their factories from other countries to the free economic zones in Pakistan.

Comment by Riaz Haq on April 22, 2021 at 4:41pm

Effect of Workers Remittances on Private Savings Behavior in Pakistan


by Rahila Munir, Maqbool Sial, Ghulam Sarwar and Samina Shaheen


https://www.researchgate.net/publication/227368264_Effect_of_Worker...


The worker remittances are an important component of national savings, increased enormously at the rate of 30 percent per annum during the last eight years (2000-2007) and be around $ 5.5 billion by June, 2007. With higher increase in worker remittances and rate of return on deposits the level of national savings would increase more.

Comment by Riaz Haq on April 22, 2021 at 5:28pm

The rise and rise of remittances
Mohiuddin Aazim

https://www.dawn.com/news/1602001


Remittances remained above the $2 billion mark in December 2020 for the seventh month in a row. In the first half of 2020-21, inflows totalled $14.2bn. The amount was about 25 per cent higher than $11.37bn received in July-Dec 2019.

----------------

But if a reasonable portion of remittances goes towards savings and investment, it will be more helpful and reduce our dependence on external borrowings.

The PTI government is trying to promote such savings and investment by facilitating and incentivising overseas Pakistanis to use their remittances’ accounts for investing in Pakistan’s debt, equity and mortgage markets. Long-term success of this policy, however, depends on close coordination of fiscal and monetary authorities and overall political stability.

Comment by Riaz Haq on April 25, 2021 at 10:41am

Performance legitimacy in the age of COVID

How regime type and governance quality affect policy responses to COVID-19: A preliminary analysis

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7898984/


The coronavirus disease 2019 (COVID-19) pandemic has slowed down economies, upended societies, and tremendously affected the daily lives of ordinary people throughout the world. In the international context, various government responses have thus given rise to many political debates and discussions centered around the handling of these impacts and the novel coronavirus itself. Here, emphasis is often placed on how regime type (i.e., democratic or non-democratic) and governance quality influence policies aimed at responding to the ongoing crisis. By examining relevant scientific resources, including the COVID-19 Global Response Index (developed by FP Analytics), Worldwide Governance Indicators (WGI), and Bjørnskov-Rode regime data, this study found that regime type was indeed related to governmental policy responses to COVID-19. Results specifically showed that governance quality (especially effectiveness) had moderate impacts on how well these policies were implemented. Due to several limitations, however, these findings should be regarded as preliminary evidence.

As a worldwide pandemic, coronavirus disease 2019 (COVID-19) had already caused more than one million deaths fewer than nine months after the outbreak was first reported in Wuhan, China. Still, the number of infections continues to increase at an unprecedented rate due to the dangerous transmission speed of the virus (Harb and Harb, 2020). As with many previous pandemics, scientific research has been pivotal in fighting COVID-19 through the development of drugs and other treatments. By contrast, political discourse has contributed very little to these life-saving measures, but has nonetheless resulted in the formation of targeted policy responses. However, little is currently known about how related political factors have impacted government responses to the pandemic.

Given this situation, Greer et al. (2020) called for synergistic collaboration between individuals working in comparative politics and scientific research. They further identified four variables that require continued investigation in order to explain how nations are responding to COVID-19, including (a) social policy, (b) regime type, (c) political institutions, and (d) state capacity (Greer et al., 2020). A variety of political science studies have addressed issues related to COVID-19 and past pandemics, particularly in regard to the debate on regime type, state responses, and how good governance affects outcomes.

Recent political science debates have focused on a possible link between regime type and national response to the COVID-19 crisis. Judging the timeliness of various government responses, Alon et al. (2020), Cepaluni et al. (2020), and Piazza and Stronko (2020) have argued that authoritarian regimes more promptly impose stringent public health measures, compared to democracies. Indeed, research has shown that nations with stronger democratic institutions tend to implement measures for combating coronavirus at a slower pace (Sebhatu et al., 2020). This tendency is also evident in historical events (Stasavage, 2020), such as the SARS outbreak of the early the 2000s (Schwartz, 2012). In contrast, while authoritarian regimes can more rapidly impose stringent health measures, they may also exercise their power to devise cover-ups that turn local contagions into a global pandemic (Alon et al., 2020). Frey et al. (2020) provided a contrast to the abovementioned studies, contending that democracies mount more effective responses to control the spread of COVID-19 by reducing its geographic mobility.

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