Tuesday, January 18, 2022

Pakistan Economy "Not in a Good Place"? Atif Mian's Gloom Justified?

Pakistani-American economist Atif Mian has recently analyzed Pakistan's economy in a series of tweets. He has said "Pakistan's economy is not in a good place", adding that the nation's "per capita income has not risen in 3 years (in fact down slightly)". He has particularly mentioned the country's "exaggerated external demand driven by its rentier economy", "flawed energy policy" and "a broken economic decision system" among the main causes for poor economic performance.  Is Atif Mian's diagnosis correct? Is the official reported data Atif Mian using accurate? What is the current PTI government doing or not doing to correct the problems identified by Mr. Mian? Let's try and assess the situation. 

Economist Atif Mian's Tweet on Pakistan Economy


Per Capita Income:

Pakistan's officially reported GDP and per capita incomes are grossly understated. These are based on the last economic census that was done from April 2003 to December 2003 and published in 2005. The last agriculture census was in 2010, and livestock census in 2006, according to Dr. Ishrat Husain, former governor of The State Bank of Pakistan. The country's economy has changed significantly since then, adding several new economic activities while others have diminished.  For example, the Quantum Index of Large Scale Manufacturing (QIM) with 2005-06 base year gives a weight to textiles of 20.9% (Yarn 13.7 and cloth 7.2). But the textile industry has moved up to higher value added products as reflected in its exports. The value added textiles (non-yarn and non-cloth) now make almost 80% of the total textile exports. These changes are not reflected in current GDP calculations. 

In its 2014 annual report, the State Bank of Pakistan talked about a number of new sectors that are either under-reported or not covered at all: "In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM."

Bangladesh just rebased its GDP in 2020-21 to 2015-16. This has boosted its per capita income by double digits for every year since 2015-16.  Bangladesh's per capita income for the 2015-16 fiscal year has now gone up to $1,737 from $1,465 in the old calculation. For the 2019-2020 fiscal, the per capita income has gone up to $2,335 from $2,024.  The new GDP estimate covers 21 sectors, up from 15 sectors previously.  India last rebased its GDP in 2015, a change that bumped up its per capita GDP by double digits. Nigeria's last rebasing in 2012 increased the size of its economy (GDP) by nearly 90%. Pakistan's current base year is 2005-6. Rebasing which is now long overdue will almost certainly increase Pakistan's per capita income by double digits. 

In this age of big data, it is important for Pakistan to ensure that its bureaucracy at Pakistan Bureau of Statistics (PBS) keeps the national economic data as current as possible. PBS should release the results of the Census of Manufacturing Industries CMI 2015-16 and the finance ministry should rebase Pakistan's economy to year 2015-16 to better reflect the current economic realities. This data is extremely important for businesses, investors, lenders and policymakers. 

Energy Mix:

It is true that Pakistan has relied on imported fossil fuels to generate electricity. The cost of these expensive imported fuels like furnace oil mainly used by independent power producers (IPPs) has been and continues to be a major contributor to the "exaggerated external demand driven by its rentier economy" referred to by Atif Mian. However, Pakistan has recently been adding hydro, nuclear and indigenous coal-fired power plants. 

Pakistan Power Generation Fuel Mix. Source: Third Pole


Construction of a 1,100 MW nuclear power reactor K2 unit in Karachi has been completed by China National Nuclear Corporation, according to media reports. A similar reactor unit K3 will add another 1,100 MW of nuclear power to the grid, bringing the total nuclear power installed capacity of Pakistan to 3,630 MW (12% of total power) by the end of 2022.  Hualong One reactors being installed in Pakistan are based on improved Westinghouse AP1000 design which is far safer than Chernobyl and Fukushima plants.  In addition, Pakistan is also generating  9,389  MW (about 28% of total power) of low-carbon hydroelectric power in response to rising concerns about climate change. 

Pakistan Exports Trend 2011-21. Courtesy of Ali Khizer

Exports and Overseas Remittances:

Pakistan is the world's sixth largest labor exporter with nearly 10 million Pakistanis working overseas. These workers sent home $31 billion in remittances calendar year 2021 (CY2021), up 19% from CY2020. In addition, Pakistan merchandise exports hit a new record of $28.3 billion in CY2021. 

Pakistan Textile Exports Trend 2011-21. Courtesy of Ali Khizer


Exports of textiles that make up the bulk of Pakistani exports jumped 32% from $13.1 billion in CY2020 to $17.3 billion in CY2021. The country's technology exports soared 40% to $2.5 billion in CY2021.  “So far, (the) country’s exports of non-traditional products, including information technology, have grown by 60 percent in the last four months," says Special Assistant to the Prime Minister on Commerce and Investment Abdul Razak Dawood. 

Summary:

Professor Atif Mian's criticism of Pakistan's economy is partially valid but his pessimism is unwarranted. He is working with flawed data based on an economic census conducted more than 15 years ago.  This data does not truly reflect current economic activities, per capita incomes and productivity. Pakistani bureaucracy needs to ensure that the underlying data for GDP and productivity is regularly updated to inform businessmen, investors, lenders and policymakers. Pakistan is also significantly boosting its foreign exchange earnings through exports and remittances from overseas workers. The issue of reliance on expensive fossil fuel imports is also being addressed by building more hydro, nuclear and renewable energy. At the same time, indigenous coal-fired power plants are also being added. Unlike Atif Mian, I do see light at the end of the tunnel. 

Related Links:


Haq's Musings

South Asia Investor Review

Pakistan Among World's Largest Food Producers

Naya Pakistan Housing Program

Food in Pakistan 2nd Cheapest in the World

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Coronavirus, Lives and Livelihoods in Pakistan

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Conspiracy Theories About Pakistan Elections"

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Riaz Haq's Youtube Channel

Friday, January 14, 2022

Pakistan Pursuing Ambitious Program to Build Social Safety Net

Pakistan's PTI government has built South Asia’s first digital National Socio-Economic Registry (NSER) as a part of its ambitious effort to build a basic social safety net. The Ehsaas (also known as BISP- Benazir Income Support)) program's socio-economic registry includes household information by  geography, age, income, education, health, disability, employment, energy consumption, land and livestock holdings etc. Ehsaas Programs include both Unconditional Cash Transfers (UCT) and Conditional Cash Transfers (CCT). Unconditional Cash Transfers are made only to people living in extreme poverty or distress. Conditional Cash Transfers like Waseela-e-Taleem and Nashonuma  are given for education and nutrition respectively.  

Development of Ehsaas Social Registry. Source: Maintains

The National Socio-economic Registry will be regularly updated to keep it current and deliver services to the Pakistanis most in need. The effort started in earnest in 2020 to hand out Rs. 12,000 per family to 3 million most affected by the COVID19 lockdown. Here's how a Pakistani government website describes the digital registry architecture:

"The Cognitive API architecture for Ehsaas’ National Socio-Economic Registry 2021 is one of the six main pillars of ‘One Window Ehsaas’. With the survey, which is building the registry currently 90.5% complete nationwide, Ehsaas is firming up its plans to open data sharing and data access services for all executing agencies under Poverty Alleviation and Social Safety Division (PASSD). Data sharing will be done through the Cognitive API Architecture approach. The deployment of Ehsaas API architecture for data sharing will allow executing agencies to access data from the unified registry in real-time to validate beneficiary information. This will empower them to ascertain eligibility of potential beneficiaries". 

Universal Healthcare Map. Source: World Population Review


More recently, the Pakistan Tehrik-e-Insaf (PTI) governments in Khyber Pukhtunkhwa (KP) and Punjab provinces have rolled out Sehat Cards to provide free health coverage to cover tens of millions of people. This is essentially a government-funded health insurance program run by insurance companies to cover up to one million rupees worth of care each year at government certified public and private clinics and hospitals. It represents a major expansion of this program which was first introduced in Khyber-Pakhtunkhwa province. It is now available to residents of Khyber Pakhtunkhwa, Punjab, Balochistan, Gilgit Baltistan, Azad Kashmir, and Tharparkar district in Sindh under the Sehat Sahulat Program.    

Related Links:

Monday, January 10, 2022

Pakistani-American Surgeon Transplants Pig Heart into A Human Patient

Pakistani-American heart surgeon Dr. Mohammad Mansoor Mohiuddin and Dr. Bartley Griffith performed the first successful genetically-modified pig heart transplant into a human patient today at University of Maryland School of Medicine (UMSOM) hospital in Baltimore, according to the University's press release. Considered one of the world’s foremost experts on transplanting animal organs, known as xenotransplantation, Muhammad M. Mohiuddin, MD, Professor of Surgery at UMSOM, joined the UMSOM faculty five years ago and established the Cardiac Xenotransplantation Program with Dr. Griffith. Dr. Mohiuddin serves as the program’s Scientific/Program Director and Dr. Griffith as its Clinical Director.    

Dr. Mohammad Mansoor Mohiuddin



Dr. Mohiuddin is a 1989 graduate of the Dow University of Health Sciences, Karachi, Pakistan. He came to the United States in the early 1990s and did a fellowship in Transplantation Biology and Immunology, Department of Cardiothoracic Surgery Harrison Department of Surgical Research, University of Pennsylvania Medical Center, Philadelphia, PA . 

A practicing Muslim, he believes it is acceptable to use pig organs if it helps save human life.  Some Islamic scholars have ruled that it is prohibited to use pig for organ transplants. However, almost all research in the field of xenotransplantation is now carried out using pigs. Researchers say pigs are a preferred choice because they grow fast and the size of their organs is similar to that of humans. There is a worldwide shortage of organ donors. Successful use of genetically modified pig hearts and other organs will help save lives in the absence of human donors. 

The U.S. Food and Drug Administration granted emergency authorization for the surgery on New Year’s Eve through its expanded access (compassionate use) provision. It is used when an experimental medical product, in this case the genetically-modified pig’s heart, is the only option available for a patient faced with a serious or life-threatening medical condition. The authorization to proceed was granted in the hope of saving the patient’s life, according to a UMSOM press release. 

 “This is the culmination of years of highly complicated research to hone this technique in animals with survival times that have reached beyond nine months. The FDA used our data and data on the experimental pig to authorize the transplant in an end-stage heart disease patient who had no other treatment options,” said Dr. Mohiuddin. “The successful procedure provided valuable information to help the medical community improve this potentially life-saving method in future patients.”  

About 30% of the 800,000 doctors, or about 240,000 doctors, practicing in America are of foreign origin, according to Catholic Health Association of the United States. Predictions vary, but according to the American Association of Medical Colleges, by 2025 the U.S. will be short about 160,000 physicians. This gap will most likely be filled by more foreign doctors.

Foreign Doctors in US, UK. Source: OECD



As of 2013, there were over 12,000 Pakistani doctors, or about 5% of all foreign physicians and surgeons, in practice in the United States.  Pakistan is the third largest source of foreign-trained doctors. India tops with 22%, or 52,800 doctors. It is followed by the Philippines with 6%, or 14,400 foreign-trained doctors. India and Pakistan also rank as the top two sources of foreign doctors in the United Kingdom.

Over half a million Pakistani-Americans constitute the 7th largest Asian ethnic group in the United States. Pakistani-Americans are young, well-educated and prosperous. Median age for Pakistani-Americans is 31.7 years. 60% have at least a bachelor's degree. Their median household income is $87,510 a year.  Last year, the remittances from Pakistani-Americans jumped 58% to $2.75 billion.

Here's a video clip of Dr. Mohiuddin describing the procedure and the science behind genetic modification of pig heart for human transplant:

https://youtu.be/D00T14balpI

 


Related Links:

Haq's Musings

South Asia Investor Review

Pakistani-American Health Professional Featured in Netflix Documentary "Pandemic"

Pakistan is the 3rd Largest Source of Foreign Doctors in America

Pakistani-Americans Largest Foreign-Born Muslim Group in Silicon Valley

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Sunday, January 9, 2022

Pakistan Gets First Woman Supreme Court Judge Despite Top Judges' Opposition

Judge Ayesha Malik has been confirmed as Pakistan's first woman Supreme Court judge in the face of strong opposition by the majority of sitting judges of the top court and Pakistan Bar Council. It was two  affirmative votes by the PTI government representatives that helped her win 5-4 confirmation in the Supreme Judicial Council (SJC). Only two of the five sitting Supreme Court judges who are members of the SJC supported her confirmation. 

Justice Ayesha Malik


The historic nomination of Justice Ayesha Malik was supported by Chief Justice Gulzar Ahmed,  Justice Umar Ata Bandial, ex-judge Sarmad Jalal Osmany, Law Minister Barrister Farogh Naseem and Attorney General (AG) Khalid Jawed Khan. It was opposed by Justice Qazi Faez Isa, Justice Maqbool Baqar, Justice Sardar Tariq Masood and Pakistan Bar Council (PBC) representative Akhtar Hussain opposed the selection.    

Justice Ayesha Malik is a Harvard Law School graduate. She started her legal career working with Mr. Fakhurddin G. Ebrahim at Fakhruddin G. Ebrahim & Co. in Karachi in 1997. Then in 2001 she joined the law practice of Rizvi, Isa, Afridi and Agnell as the head of the firm's Corporate & Litigation Department in Lahore. Justice Ayesha Malik was appointed to the Lahore High Court in 2012 where she made a historic ruling banning the "two-finger test" in rape cases.  Justice Malik said the test was "humiliating" and had "no forensic value".     

Justice Malik's appointment to the nation's highest court is part of a silent social revolution in Pakistan with a rising number of women joining the workforce and moving up in public and private institutions. However, the status of women in Pakistan continues to vary considerably across different classes, regions, and the rural/urban divide due to uneven socioeconomic development and the impact of tribal, feudal, and urban social customs on women's lives. While some women are soaring in the skies as pilots of passenger jets and supersonic fighter planes, others are being murdered for defying tribal traditions.  


Female Labor Participation Rates in South Asia



Pakistan's female labor force participation rate (22%) has recently surpassed the rate in India (21%) but still remains very low relative to the global average of 47%. Women's education and literacy levels remain low in Pakistan but the gender gap is declining in terms of literacy rates and mean years of schooling, according to Pakistan Labor Force Survey 2017-18.  There is about a one year gap between men and women in terms of education attained. On average, a Pakistani male born after 1995 will leave school in 8th grade. A female born at the same time will leave in 7th grade.

A 2020 global survey conducted by Payoneer, a global payments platform company based in Silicon Valley, showed that Pakistani women freelancers are earning $22 an hour, 10% more than the $20 an hour earned by men. While Pakistani male freelancers earnings are at par with global average, Pakistani female earnings are higher than the global average for freelancers. Digital gig economy is not only helping women earn more than men but it is also reducing barriers to women's labor force participation in the country. The survey also concludes that having a university degree does not help you earn more in the growing gig economy. The survey was conducted in 2015.

Freelancers Hourly Rate by Gender. Source: Payoneer

An average Pakistani freelancer working 34 hours a week at $20 an hour earns $34,000 a year, or Rs. 5.7 million a year, a small fortune for a young Pakistani. This is one of the upsides of the online global labor market for skilled young men and women in developing nations like Pakistan. Sometimes freelancing experience leads to tech startups in Pakistan.


Wednesday, January 5, 2022

Double Digit Rise in Energy Consumption Confirms Pakistan's Economic Recovery in 2021

Oil consumption in Pakistan jumped 19% to 20.8 million tons in 2021, a strong indication of the country's economic recovery from the COVID-impacted 2020. In addition to oil, Pakistanis also consumed nearly 4 billion cubic foot of natural gas every day. Energy is fundamental to the functioning of any economy. 

Pakistan Oil Consumption. Source: Arif Habib

Pakistan's furnace oil consumption has been declining for several years as power producers continued to switch fuel to liquified natural gas (LNG) in recent years. However, the sudden jump in LNG prices forced them to use more furnace oil in year 2021 than in 2020. There was also a big jump in diesel (HSD) and petrol (MS) with a rise in number of vehicles on the nation's roads. 

Pakistan LNG Imports 2017-2021 in million tons 


 
Pakistan Natural Gas Consumption in Billion Cubic Feet Per Day



“Year 2021 proved to be remarkable for the automobile sector as there was a volumetric sales growth of 90% on a year-on-year basis to 210,048 units compared to 110,540 units in 2020,” said Arif Habib Limited analyst Arsalan Hanif.

Pakistan Auto Sales. Source: Arif Habib


Motorcycle sales in the first 9 months of CY 2-21 were 1.4 million units, up 37.5% vs the 2020 and 13.0% vs the 2019. Atlas Honda dominated the motorcycle market with sales up 52.2%.  Soaring cement consumption, rising auto sales and double digit increase in energy consumption in Pakistan in 2021 confirm that Pakistan's recovery from the COVID-induced slump is well underway.  


Barring any adverse impact of the Omicron variant of the COVID 19 virus, Pakistan's GDP is likely to grow at least 5% in the current fiscal year ending in June, 2022. The country's average economic growth of 5% a year has been faster than the global average since the 1960s. However, it has been slower than that of its peers in East Asia. It has essentially been constrained by Pakistan's recurring balance of payment (BOP) crises as explained by Thirlwall's Law. Pakistan has been forced to seek IMF bailouts 14 times in the last 70 years to deal with its BOP crises. This has happened in spite of the fact that remittances from overseas Pakistanis have grown 30X since 2000. Every time Pakistan has faced a balance of payments crisis, the result has been massive currency devaluation, high inflation and slower growth for a period of multiple years. This is exactly what Pakistan's current government led by Prime Minister Imran Khan is dealing with right now.  This pain is the result of years of flat exports, soaring imports and excessive debt taken on during former Prime Minister Nawaz Sharif's PMLN government from 2013 to 2018.  The best way for Pakistan to accelerate its growth beyond 5% is to boost its exports by investing in export-oriented industries, and by incentivizing higher savings and investments. 

Thursday, December 30, 2021

Pakistan 2021 Year End Review: Highs, Lows and Issues

The Covid19 pandemic that started in late 2019 continued to ravage the world in 2021. Europe, India and the United States were among the most impacted by it. Pakistan was able to control it better than its large eastern neighbor but it, too, was hit by double digit global inflation. Pakistan's economic recovery began in earnest with higher GDP growth, record exports and remittances from the Pakistani diaspora. It was a banner year for Pakistan's technology startups with over $300 million of venture investments, about 15 times higher than the year 2020. The war in Afghanistan ended with the US troops withdrawal and the fall of Kabul to the Taliban. Many risks and uncertainties remain as Pakistan and the world enter Year 2022. Let us hope and pray that the new year brings peace and prosperity for all. 

Happy New Year 2022



Here is a summary of some of the key highlights, lowlights and issues for Pakistan's year 2021: 

Highlights: 


1. Banner year for tech startups in Pakistan

2. Exports, remittances and Roshan Digital Accounts hit new records 

3. Demographic dividend and record remittances 

4. Pakistan's online workforce 3rd largest in the world 

5. India variant, later named Delta variant, sparked a new wave of covid that Pakistan controlled.  Over 150 million vaccine doses administered. 

6. Pakistan presented its plans and goals to manage global climate change at COP26 conference in Glasgow, Scotland.  

7. Sehat card launched in Punjab after KP, a major step toward universal healthcare

8. Economic recovery led by construction (cement, infrastructure, housing) manufacturing (cars, motorcycles, tractors) and agriculture (bumper crops) 

9. Over 20 million mobile phones assembled in Pakistan  Number of mobile broadband subscriptions reached 110 million. 

10. Textile boom, record corporate profits, new companies registrations 

11. Pakistan is on track to become the world’s 7th largest consumer market 

12. War in Afghanistan ended with US withdrawal and the fall of Kabul to the Taliban 

13. OIC Conference on Afghanistan in Islamabad

14. Pakistan National Security Policy document launched

Lowlights: 

1. Inflation up, Deficits up, Gas shortages 

2. Going into 3rd year of pandemic with Omicron surging 

3. PTI popularity down 

Uncertainties and Risks: 

1. Humanitarian crisis in Afghanistan 

2. Impact of Omicron

3. Soaring current account deficits 

Related Links:















Thursday, December 23, 2021

India Is Among The World's Most Unequal Countries

India is one of the most unequal countries in the world, according to the World Inequality Report 2022. There is rising poverty and hunger. Nearly 230 million middle class Indians have slipped below the poverty line, constituting a 15 to 20% increase in poverty. India ranks 94th among 107 nations ranked by World Hunger Index in 2020. Other South Asians have fared better: Pakistan (88), Nepal (73), Bangladesh (75), Sri Lanka (64) and Myanmar (78) – and only Afghanistan has fared worse at 99th place. Meanwhile, the wealth of Indian billionaires jumped by 35% during the pandemic. 

Income Inequality Map. Source: World Inequality Report 2022

Unemployment Crisis: 

India lost 6.8 million salaried jobs and 3.5 million entrepreneurs in November alone. Many among the unemployed can no longer afford to buy food, causing a significant spike in hunger. The country's economy is finding it hard to recover from COVID waves and lockdowns, according to data from multiple sources. At the same time, the Indian government has reported an 8.4% jump in economic growth in the July-to-September period compared with a contraction of 7.4% for the same period a year earlier.  

Income Inequality By Regions. Source: World Inequality Report 2022


Income & Wealth Inequality. Source: World Inequality Report 2022


Rising Poverty:

Nearly 230 million middle class Indians have slipped below the poverty line, constituting a 15 to 20% increase in poverty since Covid-19 struck last year, according to Pew Research. Middle class consumption has been a key driver of economic growth in India. Erosion of the middle class will likely have a significant long-term impact on the country's economy. “India, at the end of the day, is a consumption story,” says Tanvee Gupta Jain, UBS chief India economist, according to Financial Times. “If you never recovered from the 2020 wave and then you go into the 2021 wave, then it’s a concern.”

Increasing Hunger:  

India ranks 94th among 107 nations ranked by World Hunger Index in 2020. Other South Asians have fared better: Pakistan (88), Nepal (73), Bangladesh (75), Sri Lanka (64) and Myanmar (78) – and only Afghanistan has fared worse at 99th place. The COVID19 pandemic has worsened India's hunger and malnutrition. Tens of thousands of Indian children were forced to go to sleep on an empty stomach as the daily wage workers lost their livelihood and Prime Minister Narendra Modi imposed one of the strictest lockdowns in the South Asian nationPakistan's Prime Minister Imran Khan opted for "smart lockdown" that reduced the impact on daily wage earners. China, the place where COVID19 virus first emerged, is among 17 countries with the lowest level of hunger. 

Rich Getting Richer:

The wealth of Indian billionaires increased by 35% during the lockdown and by 90 per cent since 2009 to $422.9 billion, ranking India sixth in the world after the US, China, Germany, Russia, and France, according to Oxfam

India’s 100 top billionaires saw their fortunes increase by Rs 12,97,822 crore since March last year when the Covid-19 pandemic hit the country and this amount is enough to give 138 million poorest Indians a cheque for Rs 94,045 each, according to a report in The Business Standard

Share of Income of Richest 1% in South Asia
Inequality in Pakistan:

A United Nations report on inequality in Pakistan published in April 2021 revealed that the richest 1% Pakistanis take 9% of the national income.  A quick comparison with other South Asian nations shows that the 9% income share for the top 1% in Pakistan is lower than 15.8% in Bangladesh and 21.4% in India. These inequalities result mainly from a phenomenon known as "elite capture" that allows a privileged few to take away a disproportionately large slice of public resources such as public funds and land for their benefit. 

Income Distribution by Quintiles in Pakistan. Source: UNDP

Elite Capture:

Elite capture, a global phenomenon,  is a form of corruption. It describes how public resources are exploited by a few privileged individuals and groups to the detriment of the larger population. 

A recently published report by the United Nations Development Program (UNDP) has found that the elite capture in Pakistan adds up to an estimated $17.4 billion - roughly 6% of the country's economy. 

Pakistan's most privileged groups include the corporate sectorfeudal landlordspoliticians and the  military. The UN Development Program's NHDR for Pakistan, released last week, focused on issues of inequality in the country of 220 million people. 

Ms. Kanni Wignaraja, assistant secretary-general and regional chief of the UNDP, told Aljazeera that Pakistani leaders have taken the findings of the report “right on” and pledged to focus on prescriptive action. “My hope is that there is strong intent to review things like the current tax and subsidy policies, to look at land and capital access", she added. 

Inequality in Pakistan. Source: UNDP

Income Inequality:

The richest 1% of Pakistanis take 9% of the national income, according to the UNDP report titled "The three Ps of inequality: Power, People, and Policy". It was released on April 6, 2021. Comparison of income inequality in South Asia reveals that the richest 1% in Bangladesh and India claim 15.8% and 21.4% of national income respectively.

In addition to income inequality, the UNDP report describes the inequality of opportunity in terms of access to services, work with dignity and accessibility. It is based on exhaustive statistical analysis at national and provincial levels, and includes new inequality indices for child development, youth, labor and gender. Qualitative research, through focus groups with marginalized communities, has also been undertaken, and the NHDR 2020 Inequality Perception Survey conducted. The NHDR 2020 has been guided by a diverse panel of Advisory Council members, including policy makers, development practitioners, academics, and UN representatives.

Summary:

Neoliberal policies in emerging markets like India have spurred economic growth in last few decades. However, the gains from this rapid growth have been heavily skewed in favor of the rich. The rich have gotten richer while the poor have languished. The average per capita income in India has tripled in recent decades but the minimum dietary intake has fallen. According to the World Food Program, a quarter of the world's undernourished people live in India. The COVID19 pandemic has further widened the gap between the rich and poor. 

Related Links:

Haq's Musings

South Asia Investor Review

Pakistan Among World's Largest Food Producers

Naya Pakistan Housing Program

Food in Pakistan 2nd Cheapest in the World

Indian Economy Grew Just 0.2% Annually in Last Two Years

Pakistan to Become World's 6th Largest Cement Producer by 2030

Pakistan's 2012 GDP Estimated at $401 Billion

Pakistan's Computer Services Exports Jump 26% Amid COVID19 Lockdown

Coronavirus, Lives and Livelihoods in Pakistan

Vast Majority of Pakistanis Support Imran Khan's Handling of Covid19 Crisis

Pakistani-American Woman Featured in Netflix Documentary "Pandemic"

Incomes of Poorest Pakistanis Growing Faster Than Their Richest Counterparts

Can Pakistan Effectively Respond to Coronavirus Outbreak? 

How Grim is Pakistan's Social Sector Progress?

Pakistan's Sehat Card Health Insurance Program

Trump Picks Muslim-American to Lead Vaccine Effort

COVID Lockdown Decimates India's Middle Class

Pakistan Child Health Indicators

Pakistan's Balance of Payments Crisis

How Has India Built Large Forex Reserves Despite Perennial Trade Deficits

India's Unemployment and Hunger Crises"

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Nawaz Sharif's Report Card

Riaz Haq's Youtube Channel



Sunday, December 19, 2021

Has Bangladesh Really Left India and Pakistan Behind in Per Capita Income?

Is Bangladesh's officially reported GDP figure credible? Do consumption figures support Bangladesh's claim of higher per capita income than India and Pakistan?  Is it the recent rebasing of GDP that boosted Bangladesh's per capita income above India's and Pakistan's? If Bangladesh has higher GDP per capita, why is its per capita consumption of energy, cement and steel so much lower than India's and Pakistan's? Does Pakistan really have a much larger informal economy than Bangladesh or India do? How long has it been since Pakistan rebased its GDP calculations? Is there a lot more currency in circulation in Pakistan than in Bangladesh and India? Let us try and answer these questions! 

Rebasing GDP:

Bangladesh just rebased its GDP in 2020-21 to year 2015-16. This has boosted its per capita income by double digits for every year since 2015-16.  Bangladesh's per capita income for the 2015-16 fiscal year has now gone up to $1,737 from $1,465 in the old calculation. For the 2019-2020 fiscal, the per capita income has gone up to $2,335 from $2,024.  The new GDP estimate covers 21 sectors, up from 15 sectors previously.  India last rebased its GDP in 2015, a change that bumped up its per capita GDP by double digits. Nigeria's last rebasing in 2012 increased the size of its economy (GDP) by nearly 90%. Pakistan's current base year is 2005-6. Rebasing which is now long overdue will almost certainly increase Pakistan's per capita income by double digits. 

In its 2014 annual report, the State Bank of Pakistan talked about a number of new sectors that are either under-reported or not covered at all: "In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM."

Pakistan's last economic census was done in 2003 and published in 2005, livestock census in 2006  and agriculture census in 2010. The country's economy has changed significantly since then, adding several new economic activities while others may have diminished.  The Quantum Index of Large Scale Manufacturing (QIM) with 2005-06 base year gives a weight to textiles of 20.9% (Yarn 13.7 and cloth 7.2). But the textile industry has significantly changed as reflected in its exports. The value added textiles (non-yarn and non-cloth) now make almost 80% of the total textile exports. These changes are not reflected in current GDP calculations. 


Primary Energy Consumption Per Capita. Source: British Petroleum Statistics 2021

Energy consumption:

Life in modern times is heavily dependent on energy. Per capita energy consumption, a key barometer of economic activity, is significantly lower in Bangladesh than in India and Pakistan.  Use of electricity per capita in Bangladesh is significantly less than in India and Pakistan. 

Energy Consumption Comparison in Bangladesh, India and Pakistan. Source: NationMaster

Commercial energy use (kg of oil equivalent per capita) above refers to apparent consumption, which is equal to indigenous production plus imports and stock changes, minus exports and fuels supplied to ships and aircraft engaged in international transport. It's only 142 Kg of oil per capita in Bangladesh, much lower than 463 Kg in Pakistan and 494 Kg in India.  

A more recent British Petroleum "Statistical Review of World Energy 2021" puts the per capita primary energy consumption at 9.7 Gigajoules (232 kilogram of oil equivalent) for Bangladesh, 15.7 Gj (375 kgoe) for Pakistan and 23.2 Gj (554 kgoe) for India. 

Per capita consumption of primary energy in Bangladesh has grown by 59% (6.1 Gj to 9.7 Gj) since 2010, much faster than 25% (18.2 Gj to 23.2 Gj) in India and just 6% (14.8 Gj to 15.7 Gj) in Pakistan, according to the British Petroleum's "Statistical Review of World Energy 2021". This indicates much faster economic growth in Bangladesh than India or Pakistan in the last decade. 

Cement Consumption:

Use of cement is another important indicator of economic and development activities, particularly in the infrastructure and housing construction sector.  China and the United States, the world's biggest economies, also have the highest consumption of cement. 

Cement Consumption. Source: International Cement Review

Steel Consumption:

Per capita steel consumption is another important indicator of economic activity in both construction and manufacturing sectors.  It goes into building housing and infrastructure as well manufacturing vehicles and home appliances. The United States and China, the world's biggest economies, are the largest consumers of steel. 

Per Capita Steel Consumption. Source: National Steel Advisory Council

Bangladesh is among the lowest consumers of steel products in the world. Per capita consumption of finished steel in Bangladesh (41 Kg) is lower than the regional peer Myanmar (40.5), India (75.3), Pakistan (45.7), Sri Lanka (53.5), according to the World Steel Association (WSA).

Pakistan's Informal Economy:  

 One way to estimate the size of the informal economy in any country is by looking at the amount of currency in circulation relative to overall money supply. This data is published regularly by all central banks in South Asia and elsewhere. Pakistan's currency in circulation to M2 ratio (about 30%) is more than double the ratios in Bangladesh (13%) and India (15%), indicating that the informal economy in Pakistan is much bigger.

Dr. Lalarukh Ejaz, an assistant professor at the Institute of Business Administration in Karachi, has estimated the size of Pakistan’s informal economy at 56% of the country’s GDP (as of 2019). This means that it’s worth around $180 billion a year, and that is a massive amount by any yardstick. 

Vehicles and home appliance ownership data analyzed by Dr. Jawaid Abdul Ghani of Karachi School of Business Leadership suggests that the officially reported GDP significantly understates Pakistan's actual GDP.  Indeed, many economists believe that Pakistan’s economy is at least double the size that is officially reported in the government's Economic Surveys. 

Back in 2014,  the State Bank of Pakistan stated in its Annual Report as follows: "In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM."  Pakistan's GDP has not been rebased in more than a decade. It was last rebased in 2005-6 while India’s was rebased in 2011. The recent rebasing of Bangladesh GDP to year 2015 has boosted its per capita income of Bangladesh for year 2016-16 and all subsequent years . The per capita income for the 2015-16 fiscal year has now gone up to $1737 from $1465 in the old calculation For the 2019-2020 fiscal, the per capita income has gone up to $2335 from $2024. Just rebasing the Pakistani economy will result in double digit increases in GDP for the last several years. 

Estimates of Informal Economies in Asia in 2012. Source: IMF

A research paper by economists Ali Kemal and Ahmad Waqar Qasim of PIDE (Pakistan Institute of Development Economics) estimated in 2012 that the Pakistani economy’s size then was around $400 billion. All they did was look at the consumption data to reach their conclusion. They used the data reported in regular PSLM (Pakistan Social and Living Standard Measurements) surveys on actual living standards. They found that a huge chunk of the country's economy is undocumented. 

Currency in Circulation to M2 Ratio Trends. Source: Business Recorder



Pakistan's Service Sector: 

Pakistan's service sector which contributes more than 50% of the country's GDP is mostly cash-based and least documented. Compared to Bangladesh and India, there is a lot more currency in circulation as a percentage of overall money supply in Pakistan. According to the State Bank of Pakistan (SBP), the currency in circulation has increased to Rs. 7.4 trillion by the end of the financial year 2020-21, up from Rs 6.7 trillion in the last financial year,  a double-digit growth of 10.4% year-on-year.   Currency in circulation (CIC), as percent of M2 money supply and currency-to-deposit ratio, has been increasing over the last few years.  The CIC/M2 ratio is now close to 30%, according to the State Bank of Pakistan. The average CIC/M2 ratio in FY18-21 was measured at 28%, up from 22% in FY10-15. This 1.2 trillion rupee increase could have generated undocumented GDP of Rs 3.1 trillion at the historic velocity of 2.6, according to a report in The Business Recorder. In comparison to Bangladesh (CIC/M2 at 13%), Pakistan’s cash economy is double the size. Even a casual observer can see that the living standards in Pakistan are higher than those in Bangladesh and India. 

Exports as Percentage of GDP in South Asia. Source: World Bank

Exports:

Pakistan has performed poorly in exports growth relative to Bangladesh and India since about 2007. This has been the key source of its balance of payments crises and its repeated need for IMF bailouts. Pakistan's economic growth has essentially been constrained by its recurring balance of payment (BOP) crises as explained by Thirlwall's Law

Summary:

Bangladesh just rebased its GDP in 2020-21 to year 2015-16. This has boosted its per capita income by double digits for every year since 2015-16, raising it above India's and Pakistan's. Based on published data on energy, cement and steel consumption, Bangladesh's claim of having a per capita GDP higher than India's and Pakistan's does not seem credible. In this age of growing energy-intensive industrialization, it does not make sense to have significantly lower use of key inputs like energy to produce higher gross domestic product. For Pakistan, it is important for policymakers to promote ways of documenting more of the economy. It's also important for finance officials to rebase the country's GDP to a more recent year than the year 2006 when it was last done. 

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