How Has Bangladesh Left Pakistan Behind in Per Capita Income?

[MultaniGuy]

Simple arithematics. We have more people to feed. But did u ever think of what the rate of poverty alleviation in india is?
It used to be 60% 20 years ago, now it is less than 30%.
But u have an opposite trend

where did you get your last retarded comment from?

Poverty is decreasing in Pakistan faster than India's.

I know you are butthurt, but it doesn't mean you spread lies.

 

[Mukunda Murthi Rao]

where did you get your last retarded comment from?

Poverty is decreasing in Pakistan faster than India's.

I know you are butthurt, but it doesn't mean you spread lies.

Check adb. 29% in pakistan, 21% in india.

M using my phone so unable to do detailed research. But till 2011, u were ahead of us. But things changed.

 

[Solomon2]

My childhood memories include pictures of homeless, typhoon-stricken Bengalis in rags vs. West Pakistanis in fashionable clothes going to the movies. That these Bengalis have gone from ragged to richer in two generations is tough to grasp.

 

[Khan_21]

BD per capita is not ahead . Has been said time and time again.

 

[Irfan Baloch]

http://www.riazhaq.com/2017/09/how-has-bangladesh-left-pakistan-behind.html

A headline in the Economist magazine's recent issue screams: "Bangladesh's GDP per person is now higher than Pakistan's". Let's examine this development to understand its causes.

Per Capita GDP:

The Economist article explains its headline as follows: "Last month revealed a remarkable turnaround. Bangladesh’s GDP per person is now higher than Pakistan’s. Converted into dollars at market exchange rates, it was $1,538 in the past fiscal year (which ended on June 30th). Pakistan’s was about $1,470....Strange as it may sound, Bangladesh jumped ahead because of an advance in Pakistan. On August 25th Pakistan released the results of its census, updating earlier population estimates. They showed that the country has 207.8m people, more than 9m more than previously thought. It may now have the fifth biggest population in the world, surpassing Brazil’s. But the new count also lopped 4-5% off Pakistan’s GDP per person, the arithmetic consequence of revealing so many more people."

Economic Growth Trends:

One can quibble with the Economist on details of its report but the fact remains that Bangladesh's economy has been growing significantly faster than Pakistan's for about a decade. To understand why, it's important to look into savings and investments, population growth trends and security situation in the two countries. Let's examine each in a little more detail.


Source: State Bank of Pakistan

Savings and Investment:

There's a strong relationship between investment levels and gross domestic product. The more a country saves and invests, the higher its economic growth. A State Bank of Pakistan report explains it as below:

"National savings (in Pakistan) as percent of GDP were around 10 percent during 1960s, which increased to above 15percent in 2000s, but declined afterward. Pakistan’s saving rate also compares unfavorably with that in neighboring countries: last five years average saving rate in India was 31.9 percent, Bangladesh 29.7 percent, and Sri Lanka 24.5 percent..... Similarly, domestic savings (measured as national savings less net factor income from abroad) also declined from about 15 percent of GDP in 2000s, to less than 9 percent in recent years. Domestic savings are imperative for sustainable growth, because inflow of income from abroad (remittances and other factor income) is uncertain due to cyclical movements in world economies, exchange rates, and external shocks".


Source: State Bank of Pakistan

Population Trends:

The total fertility rate (TFR) in Bangladesh has declined faster in Bangladesh than in Pakistan in the last few decades. Currently, Bangladesh is at 2.17 children per woman while Pakistan is at 2.62 children per woman.

As a result of reduced birth rates and more female labor participation rates, a larger percentage of Bangladeshi population is in the work force than Pakistan's. There are now more wage earners and fewer dependents in each Bangladeshi household. This demographic trend has helped boost Bangladesh's per capita income faster than Pakistan's.

Rising working age population and growing workforce participation of both men and women in Pakistan will significantly boost domestic savings and investment. Increased foreign direct investment such as Chinese investment in China-Pakistan Economic Corridor over the next several decades will help fill the gap between the national savings rate and investments required to reach 7% annual GDP growth to create over 2 million jobs a year.

Security Issues:

Pakistan has paid a heavy price for its proximity to and involvement in "war on terror" in Afghanistan. It has cost Pakistan dearly in terms of loss of thousands of precious lives and lower investments due to investors' security concerns. Recent operations by Pakistan Army have helped turn the tide against terrorists, bringing more hope and greater confidence in Pakistan's future. Rising FDI in CPEC-related projects in the last coupe of years are an indication of this confidence.

Future:

Pakistan is now experiencing the demographic dividend that Bangladesh has seen in the last few decades in terms of more of its population earning and fewer dependents. Pakistan's labor force is growing at 3.6% a year, much faster than its population growth rate of 2.34%. This should help boost Pakistan's per capita and its domestic savings rate.

At the same time, China-Pakistan Economic Corridor (CPEC) related projects are bringing more foreign direct investment, thereby speeding up the economic growth in the country. Pakistan's GDP growth is accelerating from less than 5% two years ago to 6% forecast for fiscal 2017-18. In its latest economic growth projections, Kennedy School's Center for International Development (CID) at Harvard University expects Pakistan's annual GDP growth to average 5.97% over the next 8 years, ranking it as the world's 6th fastest growing economy. It is within the realm of possibility that economic growth in Pakistan could exceed 7% in the next couple of years.

Summary:

Pakistan has fallen behind Bangladesh and India in per capita income as its growth rates have slipped in recent years mainly due to declining savings and investment rates and security issues. Demographic trends and improved security situation now favor Pakistan's future growth as its workforce grows and household sizes shrink.




Related Links:

Haq's Musings

Pakistan's Labor Force Expansion on Saving, Investments and GDP Growth

Pakistan's Population Growth: Blessing or Curse?

Pakistan's Expected Demographic Dividend

World Bank Report on Job Growth in Pakistan

Underinvestment Hurting Pakistan's GDP Growth

China-Pakistan Economic Corridor

Musharraf Accelerated Growth of Pakistan's Financial and Human Capital

Working Women Seeding a Silent Revolution in Pakistan


Median Income and Wealth in India and Pakistan

http://www.riazhaq.com/2017/09/how-has-bangladesh-left-pakistan-behind.html

well done Bangladesh
the over a decade American war on terror has consumed us and cost us economically and thousands of lives
hopefully the Burma issue doesnt affect Bangladesh much and there is a just and speedy resolution otherwise it can have adverse effects although not at the scale of what Pakistan suffered after American invasion of Afghanistan

 

[That Guy]

My childhood memories include pictures of homeless, typhoon-stricken Bengalis in rags vs. West Pakistanis in fashionable clothes going to the movies. That these Bengalis have gone from ragged to richer in two generations is tough to grasp.

Rags to riches? What?

Not only Bengladesh still poor and on the LDC index, but the current higher per capita is only artificially higher.

I give it at most 5 years, before the positions switch again.

 

[Solomon2]

well done Bangladesh
the over a decade American war on terror has consumed us -

Quit that. It was only last week that a thread was deleted discussing the connection between P.A. failures and TTP's rise. Waddling in illusion may be emotionally satisfying but you're not helping yourself actually solve problems that way.

 

[livingdead]

how is bd an LDC country if it's per capita income is more than pakistan's.
anyway i think pakistan has untapped potential and can easily trump India(which has always been saddled with poverty baggage) if things go back to its normal ways.

 

[That Guy]

120B$? please tell me from where you got that? the destruction of property was mostly in the tribal region and would not be more than 2B$.

At least we now know that you have no idea how war and economics works.

News flash, it's not just property damage you have to account for, it's reconstruction, the cost of military operations, the loss of foreign investment, the loss of man power, the loss of business...etc.

As for the number

(2015) https://www.google.ca/amp/nation.co...stan-suffered-107b-loss-due-to-terror-war/amp

(2016) https://www.dawn.com/news/1297305

(2017) http://dailytimes.com.pk/pakistan/2...23-billion-in-losses-in-war-against-terrorism

https://www.bloomberg.com/amp/news/...rategy-poised-to-fail-pakistan-s-premier-says

As you can see, the cost is rising every year. So whatever aid was given, it was nowhere near enough to cover the cost to Pakistan's, economy. If the war on terror never occurred, Pakistan's economy would have been around $500 billion, absolutely crushing India's per capita GDP.

 

[Indus Pakistan]

Simple arithematics. We have more people to feed.

Simple logic. You have more people to generate wealth.

 

[RiazHaq]

Higher inequality does increase domestic savings in both Bangladesh and India. The super rich tend to save a lot more while the relatively poor end up spending most of their income to meet their needs.

And Bangladeshi economy is heavily dependent on textiles for growth, a sector that was started under the military regime.

However, BD still has the bigger investable savings pool to diversify their industrial base in the future.

If BD fails to diversify, their growth will slow as the Harvard Kennedy School projects that Bangladesh growth will slow to 2.82% average over the next 10 years, much lower than Pakistan's 5.97%.

http://www.riazhaq.com/2017/07/harvard-kennedy-school-cid-projects.html

 

[Khan_21]

how is bd an LDC country if it's per capita income is more than pakistan's.
anyway i think pakistan has untapped potential and can easily trump India(which has always been saddled with poverty baggage) if things go back to its normal ways.

Its per capita is not ahead both in Nominal or PPP .

 

[Nilgiri]

Rags to riches? What?

Not only Bengladesh still poor and on the LDC index, but the current higher per capita is only artificially higher.

I give it at most 5 years, before the positions switch again.

It will probably as soon as Pakistan uses a more up to date base year. Do you know when this might happen? @farhan_9909

I don't know why exactly Pakistan got cold feet the last time it was investigating doing so (I have heard every kind of reason from certain markers doing worse or certain vested interest sectors coming under pressure from it) but Pakistan must address this, more for a greater relevant snapshot of current Pakistan economy (for policy planning) rather than solely to push up the nominal size (that is really more of a side effect any country experiences).

The real important number is realised consumption (which only gets distorted when you have to go through market exchange rates of the currency) and markers that measure that (PPP is a good example of one that aggregates and standardises it). They are not held back/helped by base year effects as much because they do their own sampling strategy. Pakistan per capita on that is lot better than BD.

However Pakistan has to address its gross capital formation % of GDP and credit availability % of GDP to its private sector. They are still very low. There is next to no reason (even accounting for war on terror) why (credit to private sector) is at 16% and not at least twice that. Depressed GCF I can kind of understand its impact given the investment is diverted to military/security spending (which have little long term GDP materialisation given next to 0 multiplier effect) + what gets physically destroyed by war etc...but even that seems really low to me (15%) all things considered (because Pakistans numbers here were pretty depressed well before WoT began). Some big term banking/credit reform is needed and Pakistan needs to improve its finance and regulatory institutions....there is definitely something structurally bad. There is only some buffer spring that coming out of the WoT scenario would afford, it has to be harnessed to fix the underlying structural problems that existed well before and continue to do so.

 

[El Sidd]

Lol

Maths is good

 

[RiazHaq]

It will probably as soon as Pakistan uses a more up to date base year. Do you know when this might happen? @farhan_9909

I don't know why exactly Pakistan got cold feet the last time it was investigating doing so (I have heard every kind of reason from certain markers doing worse or certain vested interest sectors coming under pressure from it) but Pakistan must address this, more for a greater relevant snapshot of current Pakistan economy (for policy planning) rather than solely to push up the nominal size (that is really more of a side effect any country experiences).

The real important number is realised consumption (which only gets distorted when you have to go through market exchange rates of the currency) and markers that measure that (PPP is a good example of one that aggregates and standardises it). They are not held back/helped by base year effects as much because they do their own sampling strategy. Pakistan per capita on that is lot better than BD.

However Pakistan has to address its gross capital formation % of GDP and credit availability % of GDP to its private sector. They are still very low. There is next to no reason (even accounting for war on terror) why (credit to private sector) is at 16% and not at least twice that. Depressed GCF I can kind of understand its impact given the investment is diverted to military/security spending (which have little long term GDP materialisation given next to 0 multiplier effect) + what gets physically destroyed by war etc...but even that seems really low to me (15%) all things considered (because Pakistans numbers here were pretty depressed well before WoT began). Some big term banking/credit reform is needed and Pakistan needs to improve its finance and regulatory institutions....there is definitely something structurally bad. There is only some buffer spring that coming out of the WoT scenario would afford, it has to be harnessed to fix the underlying structural problems that existed well before and continue to do so.

"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." State Bank of Pakistan Annual Report 2014Economists have long argued that Pakistan's official GDP figures significantly understate real economic activity in terms of both production and consumption.



M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE), explored several published different approaches forsizing Pakistan's underground economyand settled on a combination of PSLM (Pakistan Social and Living Standards Measurement) consumption data and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08".

And now the State Bank of Pakistan has focused on the production side of the economy in its annual report for Fiscal Year 2014. The nation's central bankers have singled out the economic activity in large scale manufacturing sector as their focus in the latest report. They say that the existing LSM (Large Scale Manufacturing) index was based on Census of Manufacturing Industries (CMI) that was conducted in 2006 which included only those sectors which had significant value addition to Gross Domestic Product (GDP) at the time of census.

In the years since 2006 CMI (Census of Manufacturing Industries) census, Pakistan has seen a significant expansion of its middle class along with rapidly growing consumer demand in sectors such as processed foods and fast-moving-consumer goods (FMCG). It's one of several major new sectors whose growth is not reflected in the official GDP figures.



Pakistan's Processed Foods and FMCG Sector Source: BMA Capital


According to a report by analysts at Pakistan's Topline Securities that examined 25 consumer firms in various sectors, the 2012 sales of the FMCG firms increased by 17% to Rs. 334 billion while profits grew by 40% to Rs. 24 billion. In the five years between 2008 and 2012, sales of these companies showed a compounded average growth rate (CAGR) of 18%, while profits grew at a CAGR of 20%.


Engro Foods, a star performer in the sector, reported 191% increase in profit in 2012 alone, led by the dairy and beverages segment. Other players such as Nestle, Proctor & Gamble and Unilever, have also seen explosive growth with many new plants in production to meet demand. The growth in this sector is not reflected in the LSM component of GDP.

Another key area in large-scale manufacturing is plastics industry. Pakistan Plastic Manufacturing Association says there are 6,000 units operating in the country, employing 600,000 people. This sector is producing a broad range of products from household items, industrial containers, medical and surgical items, auto parts, stationery items and PVC pipes. Yet they are not covered in LSM.

The SBP report further explained that the LSM data was not being reported in Pakistan in accordance with the International Standard Industrial Classification (ISIC) of United Nations Statistics Division’s defined 22 broad categories of manufacturing. The reporting of LSM is limited to only 15 sectors identified by the ISIC while data pertaining to manufactures of apparels, publishing, printing products and recorded media, fabricated metal products (except machinery and equipment), office and accounting machinery and computers, medical precision and optical instruments and recycling of metal and non-metal waste scrap, is not included as part of Pakistan’s LSM.

Pakistan has changed a lot since 2006 in terms of economy and demographics. The World Bank moved Pakistan from a low-income to middle-income country in 2007. Pakistan is much more urbanized and more middle class now than it was in 2006. Pakistan's large scale manufacturing (LSM) sector has changed to respond to meet the rising new product demands of the country's growing middle class consumers. Its time for Pakistan Bureau of Statistics (PBS) to conduct a new manufacturing census and Pakistan Census Bureau to do a population census to paint a more accurate picture of the country's demographics and economy now.

http://www.riazhaq.com/2015/01/state-bank-pakistans-actual-gdp-higher.html