Can Bangladesh economy be stronger than Pakistan's?
Mamun Rashid
10/5/2006
IS this a relevant question to ask? The country that is making frequent news in the global arena, daring to fight against a near-superpower known as India, spending billions of dollars in building military prowess and what not, is called Pakistan.
Recently we have read in newspaper that General Musharraf is now defying even the President of the United States of America with allegations of threatening Pakistan on the US anti-Laden agenda. How can a minnow of the world economies like Bangladesh, have the audacity to even think about superceding Pakistan in economic supremacy? Dear readers, please hold your breath for a moment now as we take a closer look at the macro-economic fundamentals of these two countries.
Let's first dissect and analyse Pakistan's economic performance during the last ten years. Pakistan's nominal gross domestic product (GDP) in 1997 was US$ 75.3 billion. Six years later in 2002, the country's nominal GDP came down to US$ 71.5 billion. During this six-year period, the real GDP grew by a meagre 3.0 per cent on an average. This is a poor macro-economic performance for a developing economy, especially when the other South Asian economies were growing at a much faster rate, especially, India and Bangladesh. Average export growth of Pakistan during this period was only 1.2 per cent as opposed to over 15 per cent of the neighboring countries. Pakistan government's debt was 82 per cent of its GDP in 2002. Over one-third of the government's revenue was being used up in making interest payments on the national debt. During similar period, Bangladesh's economy grew at over 5.0 per cent, government debt stood at around half of the GDP, exports grew robustly at double digit rates and government's interest payment was only around 15 per cent of government revenue. As we can see, fundamentally Bangladesh economy was faring much better than Pakistan economy during the six years between 1997-2002.
Regardless of the past performances, Pakistan has a different story to tell to the world during the last three years. The near stagnant economy suddenly started showing miraculous growth. The economy grew at 5.1 per cent in 2003, 6.4 per cent in 2004 and 7.0 per cent in 2005. The US$ 72 billions economy of 2002 has swelled into a US$ 108 billion economy in 2005, in just three years. What has Pakistan done right here? Was it a drastic opening of the economy, unconditional digestion of World Bank/IMF prescription, improvement in socio-political environment, significant change in economic policy-making or a sudden reduction of wide-spread corruption prevailing in the country? Actually, it is none of the above. Let's take a deeper look.
As we have mentioned above, during 1997-2002 Pakistan's average export growth has been 1.2 per cent per year. In stark contrast to its own past trend, Pakistan experienced an average export growth of 13 per cent per year during 2003-05. About 30 per cent of Pakistan's exports go to the United States and United Kingdom. Both of these countries have increased their imports from Pakistan by 15 per cent in 2003 and 14 per cent in 2004. On the other hand, the government's debt as a percentage of the GDP came down to 59 per cent in 2005 from 82 per cent in 2002. Also, Pakistan government's interest payment as a percentage of revenue collection came down to 23 per cent in 2005 as compared to 35 per cent in 2002. How has it been possible? The United States has led the effort to dramatically reduce Pakistan's official debt through Paris Club rescheduling and bilateral forgiveness. Pakistan's debt to the United States has been cut to half - by $1.5 billion. As the US government puts it, "The United States and Pakistan share a close, long-term partnership. The $3.0 billion, five-year assistance package announced by President Bush in June 2003, demonstrates our commitment to support Pakistan's efforts to strengthen security in the region, help Pakistan's participation in the war on terror, and build economic opportunities for its citizens by reducing poverty, illiteracy and the conditions in which extremism flourishes".
Clearly, Pakistan's economic miracle in the recent past has been a result of its foreign policy, not prudent macro-economic management. General Mosharraf has decidedly and comprehensively supported the United States and the allies in the so-called 'war against terrorism' and negotiated good economic turn-around for this country. The question here is how sustainable is this policy in the long run? How many 9/11s will there be for Mr. Musharraf to prove his worth to the US? We are already seeing signs of a degenerating cohort. In 2005, both the United States and the United Kingdom together reduced their imports from Pakistan by 2.0 per cent. In 2006, Pakistan's GDP growth will recede by half a per cent.
As published by the Asian Development Bank, the first half of FY2006 was marked by a slowdown in both industry and agriculture. Output of cotton declined by an estimated 10.9 per cent from an all-time high of 14.6 million bales harvested in FY2005. Production of sugarcane, another major summer crop, is also estimated lower than last year. The growth of large-scale manufacturing slowed to 8.7 per cent in the first quarter of FY2006 from 24.9 per cent in the same period of last year, primarily due to capacity constraints and the high-base effect. Among individual industries in the first quarter, growth of textiles tumbled to 7.2 per cent from 29.6 per cent year on year. Automobile assembly and electronics, which have shown the fastest expansion among sub-sectors in the last 2-3 years, also decelerated. Inflation accelerated in FY2005 after five years of price stability. Annual inflation, based on the consumer price index, more than doubled to 9.3 per cent from 4.6 per cent, mainly because of higher food prices and rising house rents. Due to a sharp increase in domestic oil prices, transport costs also jumped. Core -- nonfood, non-oil -- inflation also doubled, from 3.7 per cent to 7.4 per cent . In summary, Pakistan's economy is appearing to be in a dwindling state. No wonder, General Musharraf has made an allegation against President Bush of posing the threat of bombing. We do not know the truth in this claim, but it is not difficult to imagine the message Mr. Musharraf is trying to send to the United States, "my economy is dependant on you and if you stop supporting me, I will be mad at you".
Coming back to the point of this article, can Bangladesh economy be stronger than that of Pakistan? The answer in most probability will be "yes". Bangladesh's economic progress has so far been grounded on a solid foundation rather than being a result of one-off foreign policy-driven economic boost. We have built up critical democratic institutions, achieved significant progress in human development indicators, preserved freedom of speech and maintained a well-functioning market economy. Our exports are internationally competitive in the absence of quota or protection. If we can succeed in improving the law and order, reducing corruption, stabilising political environment and building the critical physical infrastructures. It may not be that far when Bangladesh will supercede Pakistan in economic development and emerge as the second largest economy in South Asia.
http://www.financialexpress-bd.com/index3.asp?cnd=10/5/2006§ion_id=5&newsid=39797&spcl=no
Mamun Rashid
10/5/2006
IS this a relevant question to ask? The country that is making frequent news in the global arena, daring to fight against a near-superpower known as India, spending billions of dollars in building military prowess and what not, is called Pakistan.
Recently we have read in newspaper that General Musharraf is now defying even the President of the United States of America with allegations of threatening Pakistan on the US anti-Laden agenda. How can a minnow of the world economies like Bangladesh, have the audacity to even think about superceding Pakistan in economic supremacy? Dear readers, please hold your breath for a moment now as we take a closer look at the macro-economic fundamentals of these two countries.
Let's first dissect and analyse Pakistan's economic performance during the last ten years. Pakistan's nominal gross domestic product (GDP) in 1997 was US$ 75.3 billion. Six years later in 2002, the country's nominal GDP came down to US$ 71.5 billion. During this six-year period, the real GDP grew by a meagre 3.0 per cent on an average. This is a poor macro-economic performance for a developing economy, especially when the other South Asian economies were growing at a much faster rate, especially, India and Bangladesh. Average export growth of Pakistan during this period was only 1.2 per cent as opposed to over 15 per cent of the neighboring countries. Pakistan government's debt was 82 per cent of its GDP in 2002. Over one-third of the government's revenue was being used up in making interest payments on the national debt. During similar period, Bangladesh's economy grew at over 5.0 per cent, government debt stood at around half of the GDP, exports grew robustly at double digit rates and government's interest payment was only around 15 per cent of government revenue. As we can see, fundamentally Bangladesh economy was faring much better than Pakistan economy during the six years between 1997-2002.
Regardless of the past performances, Pakistan has a different story to tell to the world during the last three years. The near stagnant economy suddenly started showing miraculous growth. The economy grew at 5.1 per cent in 2003, 6.4 per cent in 2004 and 7.0 per cent in 2005. The US$ 72 billions economy of 2002 has swelled into a US$ 108 billion economy in 2005, in just three years. What has Pakistan done right here? Was it a drastic opening of the economy, unconditional digestion of World Bank/IMF prescription, improvement in socio-political environment, significant change in economic policy-making or a sudden reduction of wide-spread corruption prevailing in the country? Actually, it is none of the above. Let's take a deeper look.
As we have mentioned above, during 1997-2002 Pakistan's average export growth has been 1.2 per cent per year. In stark contrast to its own past trend, Pakistan experienced an average export growth of 13 per cent per year during 2003-05. About 30 per cent of Pakistan's exports go to the United States and United Kingdom. Both of these countries have increased their imports from Pakistan by 15 per cent in 2003 and 14 per cent in 2004. On the other hand, the government's debt as a percentage of the GDP came down to 59 per cent in 2005 from 82 per cent in 2002. Also, Pakistan government's interest payment as a percentage of revenue collection came down to 23 per cent in 2005 as compared to 35 per cent in 2002. How has it been possible? The United States has led the effort to dramatically reduce Pakistan's official debt through Paris Club rescheduling and bilateral forgiveness. Pakistan's debt to the United States has been cut to half - by $1.5 billion. As the US government puts it, "The United States and Pakistan share a close, long-term partnership. The $3.0 billion, five-year assistance package announced by President Bush in June 2003, demonstrates our commitment to support Pakistan's efforts to strengthen security in the region, help Pakistan's participation in the war on terror, and build economic opportunities for its citizens by reducing poverty, illiteracy and the conditions in which extremism flourishes".
Clearly, Pakistan's economic miracle in the recent past has been a result of its foreign policy, not prudent macro-economic management. General Mosharraf has decidedly and comprehensively supported the United States and the allies in the so-called 'war against terrorism' and negotiated good economic turn-around for this country. The question here is how sustainable is this policy in the long run? How many 9/11s will there be for Mr. Musharraf to prove his worth to the US? We are already seeing signs of a degenerating cohort. In 2005, both the United States and the United Kingdom together reduced their imports from Pakistan by 2.0 per cent. In 2006, Pakistan's GDP growth will recede by half a per cent.
As published by the Asian Development Bank, the first half of FY2006 was marked by a slowdown in both industry and agriculture. Output of cotton declined by an estimated 10.9 per cent from an all-time high of 14.6 million bales harvested in FY2005. Production of sugarcane, another major summer crop, is also estimated lower than last year. The growth of large-scale manufacturing slowed to 8.7 per cent in the first quarter of FY2006 from 24.9 per cent in the same period of last year, primarily due to capacity constraints and the high-base effect. Among individual industries in the first quarter, growth of textiles tumbled to 7.2 per cent from 29.6 per cent year on year. Automobile assembly and electronics, which have shown the fastest expansion among sub-sectors in the last 2-3 years, also decelerated. Inflation accelerated in FY2005 after five years of price stability. Annual inflation, based on the consumer price index, more than doubled to 9.3 per cent from 4.6 per cent, mainly because of higher food prices and rising house rents. Due to a sharp increase in domestic oil prices, transport costs also jumped. Core -- nonfood, non-oil -- inflation also doubled, from 3.7 per cent to 7.4 per cent . In summary, Pakistan's economy is appearing to be in a dwindling state. No wonder, General Musharraf has made an allegation against President Bush of posing the threat of bombing. We do not know the truth in this claim, but it is not difficult to imagine the message Mr. Musharraf is trying to send to the United States, "my economy is dependant on you and if you stop supporting me, I will be mad at you".
Coming back to the point of this article, can Bangladesh economy be stronger than that of Pakistan? The answer in most probability will be "yes". Bangladesh's economic progress has so far been grounded on a solid foundation rather than being a result of one-off foreign policy-driven economic boost. We have built up critical democratic institutions, achieved significant progress in human development indicators, preserved freedom of speech and maintained a well-functioning market economy. Our exports are internationally competitive in the absence of quota or protection. If we can succeed in improving the law and order, reducing corruption, stabilising political environment and building the critical physical infrastructures. It may not be that far when Bangladesh will supercede Pakistan in economic development and emerge as the second largest economy in South Asia.
http://www.financialexpress-bd.com/index3.asp?cnd=10/5/2006§ion_id=5&newsid=39797&spcl=no
