Saturday, February 15, 2014

Sri Lanka Booms as India, Pakistan Lag Among South Asian Economies

Since the end of the civil war in 2009, Sri Lanka has been booming even as the rest of South Asia region has lagged.
Per Capita GDPs South Asia Region Source: Economist

Sri Lanka's per capita income has quintupled over the last two decades from about $700 to $3500, significantly outperforming all other South Asian economies. During the same period, Pakistan's per capita GDP has increased from $500 to $1300 while India's is up from $400 to $1400.

In addition to its high per capita GDP for the South Asia region, Sri Lanka has also excelled on Human Development Index (HDI), a key indicator of social development assessed each year by the United Nations Development Program (UNDP).

Human Development Index in South Asia Source: UNDP
Sri Lanka has the fastest growing economy with the highest social indicators in South Asia region. Its economy grew at 7.2% last year and it is expected to post 8% growth this year. With a literacy rate of 91% and life expectancy of 76 years, the UNDP ranks it among countries with high human development. It has achieved this progress in spite of a 26-year-long violent insurgency by the Tamil Tigers (LTTE) which it successfully ended in 2009.

By contrast, both India and Pakistan continue to lag Sri Lanka in terms of both economic and social indicators. India's economy has slowed in recent years. India's per capita GDP has shrunk in US dollar terms this year, significantly reducing the gap with Pakistan whose GDP has also seen slow growth since 2008. India suffers from low levels of human development with a rank of 136 among 187 countries. Pakistan ranks even lower at 146.

GDP Per Capita in US$ Source: World Bank
Pakistan's per capita GDP remained essentially flat in 1990s before doubling in years 2000-2008 on Musharraf's watch when Pakistan joined the ranks of middle income countries with per capita income of $1000 or more. Pakistanis have seen a very modest growth in their incomes since 2008.

While India's human development is still low, it has continued to make steady progress in the last two decades. Pakistan's human development progress briefly accelerated in years 2000-2007 on President Musharraf's watch. Pakistan's HDI grew an average rate of 2.7% per year under President Musharraf from 2000 to 2007, and then its pace slowed to 0.7% per year in 2008 to 2012 under elected politicians, according to the 2013 Human Development Report titled “The Rise of the South: Human Progress in a Diverse World”. Going further back to the  decade of 1990s when the civilian leadership of the country alternated between PML (N) and PPP,  the increase in Pakistan's HDI was 9.3% from 1990 to 2000, less than half of the HDI gain of 18.9% on Musharraf's watch from 2000 to 2007.

There is much Pakistan can learn from Sri Lanka's record on human and economic development as well as fighting violent insurgencies. It is especially important today as its economy and education suffer in the midst of a growing Taliban violence that threatens the very existence of Pakistan.

Related Links:

Haq's Musings

Can Pakistan Learn From Sri Lanka to Defeat TTP? 

South Asia Lags in UN MDG Goals

History of Human Development in Pakistan

Musharraf Accelerated Economic and Human Capital Growth in Pakistan

Politics of Patronage in Pakistan

Will "Last Chance" Talks With TTP Succeed?


Hopewins said...

Sri Lanka literacy 1950: 63%
India/Pak Literacy 1950: 19%


see page 195

Riaz Haq said...

HWJ: "India/Pak Literacy 1950: 19%"

Good find!

On page 193, UNESCO report shows Pakistan's literacy rate was only 14%, lower than India's 20% in 1950.

Anonymous said...

(IMF DATA from 1970)
Nominal per capita GDP was:

BANGLADESH $134 (then east PAKISTAN)
INDIA $118

You have great praise for Musharraf, but go further back and Pakistan was comparable to SRI LANKA!

Riaz Haq said...

Anon: "You have great praise for Musharraf, but go further back and Pakistan was comparable to SRI LANKA!"

Read the chart of per capita gdp and HDI growth included in the post and pay attention to the slope in different decades. You'll notice that the slope was much steeper during Musharraf years than in the years before or after his rule.

The worst damage to Pakistan's economy and human development was done in what is considered the lost decade of 1990s and then again in the last 5 years.

CanadianBoy said...

So according to IMF outlook,the Buddhist Majority Srilanka and Buddhist Majority China are doing better then Hindu Majority 'SuperPower' India while 'FailedState' Pakistan is still neck-n-neck with 'SuperPower' India, tsk tsk tsk.

Ramesh said...

"So according to IMF outlook,the Buddhist Majority Srilanka and Buddhist Majority China are doing better then Hindu Majority 'SuperPower' India while 'FailedState' Pakistan is still neck-n-neck with 'SuperPower' India, tsk tsk "

Yes, but if you read the Economist article "The Urdu Rate of Growth"from which the first chart has been pasted, Sri Lanka and Pakistan were neck in neck in 1990 economically and ahead of India. Since then Sri Lanka took off and India did well and went past ahead of Pakistan so Pakistan has been failing in that regard

Hopewins said...

^^RH: "On page 193, UNESCO report shows Pakistan's literacy rate was only 14%, lower than India's 20% in 1950"

This is to be expected. Undivided Punjab was about the overall average for British India, but Muslims had lower literacy than Sikhs/Hindus. So after partition the average literacy in West Punjab would have collapsed due to exodus of more literate Sikhs/Hindus and arrival of less-literate Muslims from East Punjab.

Given than Punjab is 60% of our population, any change in Punjabi statistics affects our overall National rates significantly.

This is the most likely explanation for why Pakistan has a lower rate than India in 1950 after the partition transfer.

CanadianBoy said...

Ramesh: But Pakistan is already a 'failed state' what is "Superpower" India's excuse?
And why is a non-hindu non-super power like Srilanka doing better then 'Superpower' smart-hindu India?
Perhaps like Urdu rate of growth Superpower India is going back to it's traditional Hindu rate of growth,fitting.

Iqbal Singh said...

India is 20% non Hindu and Sri Lanka is 20% Hindu !!
Make your comments using facts please! I am Sikh and Muslim living in India by the way!

CanadianBoy said...

World's biggest Weapons buyer India losing more soldiers in Red Corridors than J-K, One Indian solider dies three days.Indian born Maoists are killing more Indian soldiers then all'cross-border' terrorists combined.

Anonymous said...

Has the Indian economy shrunk over the last one year? A PTI press release states that India's economy is expected to grow to $1.7 trillion by the end of the financial year 2013-2014. But how much was the Indian economy's size previous year? In dollar terms was it less or higher than $1.7 trillion? Interestingly as per an IMF report, name World Economy Outlook published in April 2013, the Indian GDP for the financial year 2012 was $1.8 trillion and was expected to be $1.9 trillion for the financial year ended 2013-2014. Therefore from that perspective the Indian economy has not risen to $ 1.7 trillion but has actually shrunk in dollar terms from $1.8 trillion to $1.7 trillion at a time when it should have been ideally been $1.9 trillion. In terms of rupees, surely the value of the Indian economy has grown up to Rs 105.39 Lakh Crore from Rs 93.88 Lakh Crore in 2012-2013 (Read here).

Yet the shrinking in the dollar term is primarily because of major devaluation of the rupee over the last one year. From around the level of below 55, the rupee had a major fall to 68 to a dollar before having a substantial recovery to around 62 now. The considerable depreciation, which was predominantly because of a massive surge in Current Account Deficit (CAD), has to a certain extent arrested but other major concerns, which too have been responsible for the falling trust in rupee, do remain. Therefore apparently even though in rupee terms the Indian economy has gone up, it has not benefitted the economy and on the contrary, a falling value of rupee increases the cost of imports thereby increasing the cost of literally everything, which has a substantial import component, even when that product is manufactured in India. Such increase in costs, including that of the import bills of fuel and gold in addition to a host of other things, eventually result in inflation. While a certain proportion of the CAD was also due to incredibly high level of gold import, one cannot deny that policy paralysis, policy indecisiveness, lack of institutional clarity, issues of corruption, massive delays in clearance of projects and tax feud, each of these did play a role in making India's growth story a sad saga where even increase in the GDP in terms of rupee does not end up in helping the nation at large. Meanwhile efforts to contain inflation have always been with respect to tampering with the interest rate with the presumption that higher interest rate would induce more deposit and reduce expenditure thereby controlling inflation. For the last few years it has been proved that India's primary inflation is because of food prices and not because of organised industry. Therefore unless reforms are brought in the agriculture sector, India's issues of stubborn inflation will not go away. The supply side constraints created by inefficiencies in the supply chain of agricultural products with middlemen making huge profit at the cost of both the producer of agricultural products and end consumers, is hurting the economy a lot. In addition to this, the investment climate has to be improved with a clear cut policy directive. One has to give some credit to the Finance Ministry and RBI for containing the CAD and bringing it down to manageable levels, yet the problems of India will not be solved by that alone. If policy directives are one thing that is needed to be worked upon, the other key issue invariably is that of subsidy. India's gargantuan subsidies and populist policies, be it highly subsidized fuel oils, be it subsidy in fertilisers or be it the food security bill or employment guarantee scheme, each of these revenue expenditures essentially has become a drag on the economy with no sustainable asset development to compliment the money being spent.

Read more at:

Riaz Haq said...

Here's a report on US Investment Banks cutting staff in India:

New York: Investment banks from UBS AG to Morgan Stanley spent half a decade building their operations in India, betting that a growing economy would trigger a boom in mergers and stock sales. They’ve spent the last three years reversing that expansion.
The number of investment-banking positions in India has dropped by about 30% since 2010—more than double the pace of global industry cutbacks in the same period—according to the Indian unit of recruiter Randstad Holding NV. Some firms, including Bank of America Corp., have made even steeper cuts.
The reductions reflect the falloff in deals and equity offerings involving Indian companies, down about 50% by value from 2010, as the country’s $1.8 trillion economy slows and corporate debt rises. “Some banks have resorted to lowering fees as they chase work, further denting revenues. More job cuts may come as big mergers and stock offerings remain subdued,” people familiar with the matter said.
“It is a bloodbath at investment banks focusing on deals above $100 million,” said Vikram Utamsingh, a Mumbai-based managing director at consulting firm Alvarez and Marsal Inc. “It’s extremely difficult at this point in time to get hired as an investment banker in India. I don’t know how any bank will grow in this market.”
BofA reductions
Bank of America’s local unit, the second-ranked takeover adviser in India last year, has cut almost half of an investment-banking team that numbered 40 in 2010, said a person with knowledge of the matter, who asked not to be identified as the details are confidential. UBS has reduced investment-banking headcount to 10 from 16 during the same period, while Morgan Stanley’s local staff has fallen to about 22 from 35, people familiar with the banks’ operations said.
Spokesmen for the three banks declined to comment.
“Not all foreign firms are retrenching. Moelis and Co., the investment bank founded by Ken Moelis, entered India in 2012 and now has nine bankers there,” said Manisha Girotra, CEO of the New York-based firm’s local unit. Girotra said she plans to add staff in India, calling it a long-term strategic market for Moelis.
“Some foreign banks have responded to India’s challenges by cutting senior positions there in favour of flying in bankers from offices like Hong Kong and Singapore when needed,” according to executives who spoke on condition of anonymity....

HopeWins Junior said...

As I have always said, "Savings, savings, savings".

This is the mantra that Pakistan should be repeating while it clicks its development-beads.

Riaz Haq said...

Here's an AFP report on GDP growth in Pakistan's current fiscal year:

KARACHI (AFP) - Pakistan recorded five per cent growth in the first quarter of the current fiscal year, the central bank said on Friday, beating its target and almost doubling the figure for the same period last year.

The State Bank of Pakistan's data for the early months of the financial year began in July 2013, said GDP grew by 5.0 per cent, compared with only 2.9 per cent in the first quarter of the last fiscal year.

Nuclear-armed Pakistan, plagued by a bloody, destabilising Islamist insurgency and chronic power shortages, has struggled to energise its economy in recent years.

Growth has bumped along well below the level experts say is needed to absorb new entrants to the workforce from Pakistan's growing, youthful population.

Riaz Haq said...

Here's a BBC report on slowing economic growth in India:

India's economic growth rate slowed down in the most recent quarter, according to official figures.

The economy expanded at an annual rate of 4.7% in the three months to December, down from 4.8% in the previous quarter.

The figure was lower than analysts had been expecting.

Asia's third-largest economy has been weighed down by various factors, such as high inflation, a weak currency and a drop in foreign investment.

For the same period in 2012, annual GDP growth was 4.5%.

This is the fifth quarter in a row that India's annual growth rate has been below the 5% mark.

Manufacturing was hardest hit - falling by 1.9% compared with the previous year. The industry is considered one of the country's biggest job creators.

However, hotels, transport utilities and agriculture all showed substantial growth.

"We continue to expect India's economic recovery to remain slow and uneven. Local conditions remain challenging, which is critical as the economy is driven primarily by domestic demand," said Capital Economics economist Miguel Chanco.

Two years ago, India's growth rate stood at about 8%. Economists say the country needs to grow by that much in order to generate enough jobs for the 13 million people entering the workforce each year.

The BBC's Yogita Limaye in Mumbai says the numbers are not good news for the ruling Congress Party, which faces elections in May.

"These figures show that the slowdown really cemented itself in 2013. All four quarters showed growth below 5%," she said.

"One silver lining [for the government] is inflation. Prices had risen steeply in the beginning of the year but over the past two months they have come down."

More than half of the country's 1.2 billion people are under 25. Chand Pandey is one of them. He lost his job at a car parts firm recently and is struggling to find another one.

"Whichever company I go to, they say there's a slowdown and there's less production," he said.

"So they're not hiring any workers right now. It's been two or three months that I've been looking for a job, but I get the same answer everywhere."

Canadian Boy said...

"Failed State" Pakistan recorded five per cent growth in the first quarter of the current fiscal year, the central bank said Friday, beating its target and almost doubling the figure for the same period last year.

Riaz Haq said...

Here's an Express Tribune story on inflows into Pakistan Development Fund:

As the State Bank of Pakistan remains tightlipped over the source and purpose of funding, Pakistan received another tranche of $750 million in the newly-established Pakistan Development Fund (PDF), taking the total contribution to $1.5 billion so far.
Highly-placed sources told The Express Tribune that friendly countries have injected another sum of $750 million in the PDF – an account opened to channel money from abroad. The last tranche was received in February that stabilised the dwindling official foreign currency reserves.
It is the first time that any country has generously given $1.5-billion assistance to Pakistan within one month, as Islamabad never received such an amount as ‘upfront’ payments. The US, which remains the largest contributor, always gave amounts in tranches spreading over several years. Under its five-year, $7.5-billion Kerry Lugar aid package, Washington gave less than $2.5 billion in government-to-government assistance in over three years.
However, it was not clear whether the money received is a grant or depositary loans aimed at temporarily bailing out the country.
The officials, seeking anonymity, confirmed the receipts but none of the concerned government agencies came on the record.
SBP chief spokesman Umar Siddiqui did not respond to queries regarding receipt of the $750-million second tranche.
However, a statement issued by the Ministry of Finance, quoting Finance Minister Ishaq Dar, said, “The government of Pakistan has implemented concrete steps to improve the overall external position by ensuring substantial capital and financial inflows in the country.
“As a result, reserves have improved substantially in the last one month. This has been made possible by not only receiving larger inflows from multilateral and bilateral resources; but also through attracting forex flows through the capital markets and better home remittances.
“The forex reserves of the country have improved from $7.59 billion on February 7, to $ 9.37 billion on March 7. The efforts of the government have started to show positive results and are on track to deliver what we had announced earlier that our forex reserves will reach around $10 billion by the end of March.”
Dar’s statement also came on back of the rupee strengthening to Rs101 against the US dollar in the open market. However, the finance minister’s earlier claim, which he made last year that the dollar would be brought down to Rs98, still
remains elusive....

Riaz Haq said...

Washington, April 9. 2014—The World Bank said today it was cautiously optimistic about economic prospects in South Asia in 2014 because of growing exports and investment as it emphasized that the risks to growth were becoming more domestic, including an increasingly vulnerable banking sector.

In its twice-a-year “South Asia Economic Focus”, the World Bank forecast that economic growth would rise to 5.8% in 2015 from 5.2% this year and 4.8% last year. South Asian countries – which include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka – appeared to have largely recovered from last year’s financial turmoil caused by changes in US Federal Reserve monetary policy. Many were rebuilding currency reserves while curbing current account deficits.

But these successes on the external side were accompanied by looming problems in the domestic economy. Economic growth could be held back by unstable banking sectors, inflation, fiscal deficits and debt, and persistent shortfalls in energy and transport infrastructure across the region.

“Now that external pressures are waning, it’s time to refocus on addressing problems within the economies in South Asia so that countries can boost growth and reduce poverty,” said South Asia Chief Economist Martin Rama. “The good news is that across South Asia there is a growing momentum in support of reforms to increase growth because governments recognize this is the best way to overcome poverty.”

Over this year, the report saw a strengthening of economic growth for most South Asian countries.

The region’s largest economy, India, would see growth rise to 5.7% in fiscal year (FY) 2014 from 4.8% last fiscal year with activity receiving a boost from a more competitive exchange rate and many large investment projects going ahead. Pakistan’s economic growth could increase to 4% this fiscal year from 3.6% in FY2013 as its economy benefitted from a reduction in electricity blackouts, resilient remittance flows from Pakistani workers abroad, rebounding manufacturing exports and a more buoyant services sector. Nepal was recovering from a difficult year affected by setbacks in the agricultural sector and with its government budget. Helped by strong remittance flows boosting consumption and the services sector, the economy should grow by 4.5% in FY2014 after 3.6% in FY2013. Sri Lanka would continue to grow at 7.3% this year as the economy was sustained by new capacity from infrastructure investments and rebuilding after the country’s recent conflict.

Economic activities recovered in the second half of FY14 in Bangladesh, driven by resilient exports and domestic demand, following setbacks suffered in the first half due to political uncertainty and turmoil. A recovery in export growth and increases in public expenditure are likely to help achieve 5.4% GDP growth in FY14, slightly lower than last year’s 6%.

The economy in Afghanistan will be weighed down by the persistent uncertainty caused by the withdrawal this year of international forces and the subsequent reduction in foreign aid for the economy. In addition, the country’s agricultural sector’s output has declined. Economic growth was therefore projected to fall to 3.2% this year after 3.6% in 2013. Depending on security and whether agriculture rebounds and mining output increases, Afghanistan could see growth recover in 2015 and 2016 to around five percent.

The report made a point of focusing on the banking sector because of its centrality for South Asia’s economic stability and growth.