Global Competitiveness Report and Pakistan – II

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VIADr. Omer Javed
SOURCEBusiness Recorder
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While Pakistan dropped three places from its 2018 GCI (Global Competitiveness Index) ranking of 107th to 110th, the region of South Asia (SA) as a whole could only improve its median competitiveness performance by 0.08% – the least improvement for any region. Insofar as Sub-Saharan Africa (SSA), which is rightly described as the most development challenged places in the world, is concerned, it has shown the second best improvement at 2.35% among regions. report

In terms of individual 12 pillars on which GCI is based, SA’s performance was second-last only to SSA’s, which is quite revealing for South Asia in terms of the lack of overall improvement as a region. Although this region includes countries like India and Bangladesh that are growing at fast pace in terms of GDP (gross domestic product), it is struggling in terms of competitiveness. To highlight this further, India which has the highest competitiveness score in the region at 61.4, yet it is the worst in terms of best performers of all other regions; the next best being Mauritius at 64.3 from Sub-Saharan Africa!

Also Read: Global Competitiveness Report and Pakistan — I

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At the same time, the Global Competitiveness Report (GCR) 2019 indicates that in South Asia the worst performer in terms of GCI score is Nepal at 51.6 (ranked 108th), and Pakistan is only a little better at 51.4 points – the second worst performing country in the region in terms of competitiveness. This indicates Pakistan is comparable in terms of competitiveness with countries, above the median, in the region of Sub-Saharan Africa!

The report points out that a) SSA was really close to SA in terms of the pillars of i) institutions, and ii) ICT adoption, b) SSA close to SA in terms of i) infrastructure, ii) macroeconomic stability, iii) skills, and iii) innovation capability, and c) SSA even better in terms of the pillars of i) product market and ii) labour market. This indeed reveals how SSA has continued to show remarkable improvement in competitiveness- an important long-term indicator of economic resilience- while SA, on the other hand, has been losing steam over the years, focusing perhaps more on GDP growth than the broader landscape of economic performance for all, and one that is environmentally conscious, and socially inclusive.

The above indicates all the more amazing performance on the part of SSA given against a score on the pillar of market size, which takes into account GDP and imports of goods and services at 40.4. SA outperforms SSA at 67.7, indicating that SA has not taken advantage of its better potential in terms of market size for positively translating its impact into competitiveness.

Before discussing the 12 pillars as such for Pakistan, some of the selected indicators here are indeed quite revealing. Firstly, 10-year annual GDP growth was a paltry 3.6%, which means that the two previous governments in power, and the incumbent government, have remained unable to enable the country to grow at a pace that generates jobs, and creates space for needed social- and welfare-related spending.

Secondly, 5-year average FDI inward flow (as a percentage of GDP) was only 0.8%, showing in turn a lack of needed supportive policy framework in place that could build up a better long-term economic base for the country in terms of being more competitive. Its absence led to creating only a little attraction for foreign investors. Thirdly, the unemployment rate is shown to be only 3%, which does not make sense even in the light of the above two indicators alone. Here, it appears that this statistic needs to be adjusted by the next GCR report in the light of reaching better data at the national level, internalizing such possible factors as a) presence of disguised labour, and b) large informal/undocumented sectors of the economy, among other reasons.

As earlier indicated that GCI is composed of 12 pillars, and in the case of Pakistan in eight out of those twelve pillars, the country ranks below 100th position for a) institutions (107th), b) infrastructure (105th), c) ICT adoption (131st), d) macroeconomic stability (116th), e) health (115th), f) skills (125th), g) product market (126th), and h) labour market (120th); with 99th position for financial system (the 9th pillar). Only for three pillars out of those 12 that Pakistan has some level of better performance, which includes market size (29th), business dynamism (52nd), and innovation capability (79th).

The performance of the above pillars is similar to the ones produced in reports in the recent past. GCI always highlights performance of longer term nature. This was apparent to the then incoming government in August 2018; yet, out of the many economic sectors that these pillars cover, PTI government has hardly given policy framework for any of these, focusing mostly on macroeconomic stability.

Here too, contrary to what the government would have us believe, GCR indicates that performance of Pakistan in terms of the fourth pillar, which is ‘macroeconomic stability’, the score has actually gone down from that of the one reported in GCR 2018 to 68.7; while out of 141 countries surveyed in the Report (constituting around 99% of world’s GDP), Pakistan in terms of macroeconomic stability stood at a weak position of 116.

The breakup here indicates, among other things, that the situation worsened from 2018 in terms of inflation (measured by annual percentage change in the Consumer Price Index; average 2017-2018), whereby the score dropped to 99.9 and country’s ranking as per GCI 2019 stood at 92. This once again makes the decision of State (or central) Bank of Pakistan to stick with the policy stance of tight monetary policy as a controversial decision because clearly this has not worked towards reducing inflation in any sustained way. Instead, as the Report points out, it is time for fiscal policy to share greater burden for reducing inflation.

The second component of the overall pillar being debt dynamics once again shows a deteriorating situation since GCR 2018. Within the first pillar, institutions, the sub-components where Pakistan was ranked close to the 100th position or worse, included a) ‘security’, where the country’s overall position was 126th; and within it for organized crime (112th), terrorism incidence (141st), and reliability of police services (98th). In the particular case of terrorism incidence, which ‘assesses the frequency and severity of terror attacks’, the situation has markedly improved since the end of the time period taken by GCR 2019 report of 2013-2017, as highlighted by numerous state-level visits, and more tourists received by the county; including resumption of international cricket matches in the country.

Textile sector in dire straits

Within institutions, the sub-component of ‘social capital’, which ‘measures national performance in three areas: social cohesion and engagement (bridging social capital), community and family networks (bonding social capital), and political participation and institutional trust (linking social capital), shows poor performance of the country, where it is ranked at 105th position. This is an exceedingly important indicator for economy and democracy which need to be focused through by significant policy intervention.

In another sub-component of this pillar ‘freedom of the press’, the score deteriorated from 2018, and the ranking currently stood at 116th. There appears to be significant measurement concerns here that GCR in the future should try to address.

Other sub-components within this pillar, where the country needs to improve a lot, include sub-pillars (given space limits)a) public sector performance (87th), b) transparency (101st), and c) property rights (100th).

In the second pillar, infrastructure, areas of greater weakness include, a) utility infrastructure (114th) and within it, i) electricity access (as percentage of population; 111th), ii) exposure to unsafe drinking water (125th), and iii) reliability of water supply (106th); essential areas that require prioritized policy action by the government.

Other remaining aspects of competitiveness in terms of pillars or their sub-components, where Pakistan needs to improve drastically, include ICT adoption (131st), health (115th ), and within it health life expectancy (114th), current workforces’ mean years of schooling (123rd), extent of market dominance (126th), trade tariffs (139th), labour market (120th), meritocracy and incentivization (122nd), and within it ‘ratio of wage and salaried female workers to male workers’ ranked at 138th pointing in turn to the acute gender imbalance against women, when it comes to their presence in overall workforce.

As per the Report, the financial system (99th position) is not performing that well in Pakistan, in particular in terms of a) domestic credit to private sector (percentage of GDP; 122nd), b) insurance premium (volume to GDP; 104th), c) soundness of banks (93rd; contrary to the chest-thumping claims of banks in Pakistan otherwise), d) non-performing loans (96th). The last two indicators fall in the GCI component or category of ‘stability’ of the financial system. As the government launches a massive housing scheme and looks for improvement in domestic investment and export levels, it is important that it establishes a ‘commission’ to suggest specific needed reforms in a timely manner to improve the financial system in the country significantly.

Other areas of concern can be gauged from analyzing further pillars highlighted in the Report. Competitiveness is an important determinant for placing the economy on the path of sustained, inclusive, and environmentally responsible growth path. The weak standing in this regard of Pakistan underscores the need for government to initiate deep reforms on an urgent basis. It must not lose sight of the fact that a programme with the IMF (International Monetary Fund) alone will not help achieve a lot; in fact, it needs the support of other reforms to produce some convincing results for macroeconomy.-Concluded. This was the last part of a two-part series.

(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund) He tweets @omerjaved7

(This news/article originally appeared in Business Recorder on October 18th, 2019)

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