Undoubtedly, there are different causes for the severe dysfunction in Pakistan and Sri Lanka, and most of them are unique to each country
Two of our neighbouring South Asian countries are going through great political-economic crisis. In Sri Lanka, runaway inflation, devaluation of currency, electricity and fuel shortages, outstanding debt payment, and other predicaments have so devastated ordinary life that the common people have taken to the streets against the ruling Rajapaksa family, which has been dominating Sri Lankan politics for more than decade after successfully ending the long Tamil Civil War.
In Pakistan, the opposition united to bring a No Confidence motion against Prime Minister Imran Khan, who is trying to thwart the opposition move by refusing to table the motion and dismissing the parliament. This has put Pakistan in yet another constitutional crisis which may end in yet another military takeover of government. Economic crisis is at the heart of the political turn in Pakistan also. What united the famously fractious political groups like PML, PPP, and Jamiatul Ulema-e-Islam against Imran Khan’s government is the grievance of economic mismanagement at the top.
Undoubtedly, there are different causes for the severe dysfunction in Pakistan and Sri Lanka, and most of them are unique to each country. Pakistan has been going through a lacklustre economy for a long time, and analysts have generally blamed the hugely distorting influence of the Army in politics and economy as the main cause. In Sri Lanka, fingers are usually pointed at some risky and foolhardy economic, foreign investment policy decisions by the Rajapaksa family that have failed spectacularly.
The ongoing Covid pandemic is surely a common cause in the malaise across these countries. However, I believe that one economic indicator that is both a common symptom and cause in these two countries, explains a lot of the source of the predicament.
In 2010, according to World Bank figures, goods and product exports of Pakistan, Sri Lanka, and Bangladesh were $21.5, 19.2, and 8.6 billion respectively. In 2019, the year before the pandemic hit, the figures for these countries were $23.3, 39.5 and 11.9bn respectively. In the decade of 2010s, Bangladesh enjoyed robust export growth, while exports were more or less stagnant for Pakistan and Sri Lanka.
Export income has great multiplying effects in the economy of developing countries that go far beyond the mere total figure. Throughout the modern era, lack of growth in exports has almost always preceded economic and monetary crises in developing countries, in Latin America, Africa, Middle East, Eastern Europe, and in Asia. A country enjoying robust export growth seldom experienced such crises. Bangladesh’s healthy export growth is a main reason that the macroeconomic indicator of the country has remained relatively in good shape compared to the hapless neighbours.
There is a puzzle in Bangladesh’s export performance in comparison to neighbours like Sri Lanka and Pakistan. In many of the social and institutional indicators that are usually identified with good governance, Bangladesh actually lags far behind Sri Lanka and somewhat behind Pakistan also. Corruption is generally the popular bugaboo for most problems of our societies. In the famous Transparency International’s CPI index for the period 2007 to 2019, average rank of Bangladesh was 143rd among countries of the world, Pakistan 128th, Sri Lanka 90th. In World Bank’s Ease of Doing Business Index for 2020, Bangladesh ranks 168th while Sri Lanka ranked 99th and Pakistan 108th.
Bangladesh has far less in public spending in education and health as a percentage of GDP than Sri Lanka and even Pakistan. While Pakistan’s human capital is comparable to Bangladesh, Sri Lanka has historically been the star of South Asia in human capital, far ahead of neighbouring countries in mass educational level and quality.
In terms of democratic governance also, Sri Lanka’s indicators are far ahead of Bangladesh and Pakistan leads us too. So, the question naturally arises, why is the Bangladesh economy growing robustly while Sri Lanka and Pakistan, despite better social and institutional indicators, are lagging?
For national exports, social-institutional indicators matter little unless they result in products and services than a country can produce competitively in the world market and there are demands for the said products and services. In the global economy, just like the personal economy of individuals, qualifications matter only to the extent they help in obtaining income from jobs or entrepreneurship.
An oft-misunderstood fundamental aspect of the global economy is that different products and services require different levels of qualifications and these required levels of matching products and institutions are lumpy, not continuous. Sometimes countries can become overqualified or mis-qualified for the ranges of products that are suitable for them.
If social and institutional capabilities of the countries outstrip their economic productivity, countries can find themselves stranded.
Despite a historical head start in cotton production and textile industry, Pakistan failed to break into the Garments export substantially because of endemic social and political reasons. Sri Lanka was a star in Garments export in the 1990s and 2000s despite the ongoing Civil War. But the 2010s found Sri Lanka becoming gradually uncompetitive as wage demand of a qualified labour force overtook the productivity of the industry. Sri Lanka failed to make the timely jump into another suitable level of matched products and capabilities.
Bangladesh has long occupied a sweet spot in garments competitiveness because of low wages and agglomeration of sourcing strategies. This has helped us weather global and domestic turmoil, institutional weaknesses. However, there are indications that wage level in the garments industry is becoming unmatched with the general state of society and economy. There are reports that young men and women are finding garments wages unattractive, and industries are struggling to find workers. Substantial increase in wage seems inevitable even in the short run. However, the wage increases must be matched by productivity enhancing investments in technology, working environment, and worker heath. I think Bangladesh’s economic conditions are good enough for entrepreneurs to make these longer-term investments without hurting competitiveness.