April 09, 2021
Bangladesh, Pakistan, and Bad Stats
Bangladesh celebrated the 50 th anniversary of its declaration of independence from Pakistan on March 26. This prompted a number of newspaper and magazine articles that praised its remarkable achievements in development since its rather troubled beginnings.
Bangladesh in 1971 was among the poorest nations on Earth, and had rather dim prospects according to many. Henry Kissinger, the US Secretary of State, famously dismissed it as a “basket case”. But Bangladesh defied the skeptics and has made remarkable strides. This, however has led to some flawed comparisons to Pakistan. For example, The Economist, a world-famous British newsmagazine, touted the fact that Bangladesh’s GDP per capita was 40% less than West Pakistan in 1971, but is 40% higher today according to World Bank figures. They also noted that Bangladesh has grown much faster than Pakistan and India for that matter in the last decade. So is this true? Are Pakistanis really living lives much poorer than Bangladeshis? Has Bangladesh not merely caught up to Pakistan, but far surpassed it?
That question deserves a careful answer, but first it must be acknowledged that Bangladesh has achieved tremendous results in the field of basic health care and primary education. Bangladesh has a higher literacy rate than Pakistan does, and lower infant mortality and longer life expectancy. Life expectancy reached 72 years in Bangladesh in 2018, but was 67 years in Pakistan and 69 in India. The difference is mostly due to lower infant mortality. Bangladesh has also done a great job in family planning and reducing population growth.
While both Pakistan and Bangladesh had about 60-65 million people in 1971, Pakistan now has 220 million while Bangladesh has only 166 million. Bangladesh’s great strides in human development was driven not so much by government policy as by the massive involvement of international NGO’s working on health and primary education over several decades. Pakistan has not anywhere near this level of international support. Politically, Bangladesh has not achieved a stable democracy, with the current government of Sheikh Hasina, the daughter of the nation’s founder, repressing its opponents and cementing power for over a decade.
Economically, Bangladesh has reduced extreme poverty significantly over the last 20 years. It has had huge success in creating a textile export sector, and is the world’s second largest exporter of ready-made garments, only behind China. Total exports hit 46 billion dollars in 2019, of which textiles accounted for 80%. Compare to Pakistan’s total exports of about 28 billion dollars in 2019. Bangladesh’s textile industry creates thousands of jobs for women.
But is there more to the story? What if we look at the actual living standards of Pakistan and Bangladesh in more concrete terms, what do we see? Let’s start by looking at the consumption of high-end food, beyond the basics of wheat or rice or beans. When people have a higher living standard one of the first things they do is eat more animal protein in various forms, including meat, milk, and eggs. Compare consumption for these goods in both countries. In 2017, Pakistanis annually consumed per person 17 kilos of meat, while Bangladeshis less than 4 kilos. Pakistanis ate more eggs, 3.3 kilos per year compared with 2.8 kilos. In milk, the disparity was massive, Pakistanis consuming 185 liters per year, while Bangladeshis only drank 18 liters per year.
How about the purchase of middle-class and upper middle-class goods like motorcycles and cars? Bangladesh has about 370,000 registered cars on its roads and 3 million registered motorcycles. Pakistan has 3 million cars and 18 million motorcycles in 2019. Annual motorcycle sales in Bangladesh are running around 500,000 while in Pakistan it should reach 3 million this year. Pakistan has a significant and expanding auto industry that will sell about 200,000 cars this year, Bangladesh has almost no domestic auto industry and much lower sales of imports.
In electricity, Pakistan has 40 gigawatts of installed capacity, about twice that of Bangladesh. While Pakistan has 30% more people, it also does have more electricity per person. Bangladesh has done a great job in providing basic literacy, but Pakistan has a more developed system of higher education. There are two million Pakistanis in university but only about 800,000 Bangladeshis. In construction, Pakistan consumes almost twice as much cement as Bangladesh.
It appears that Pakistanis overall still have a significantly higher material standard of living than Bangladeshis, so what to make of the GDP statistics cited by The Economist? In a nutshell they are fatally flawed in two important ways.
First, they use market exchange rates to convert national income from local currency (Rupees or Takas) into dollars. This fails to take into account gyrating exchange rates that can cause these numbers to swing wildly. Over the last two years the Pakistan Rupee has depreciated sharply against the dollar, from 105 to 160 PKR to the dollar, and this drop sharply cut Pakistan’s GDP per capita in dollar terms, even though Pakistanis did not see a 35% drop in their living standards. This swing artificially depresses the reported figures. There is a way to control for this, which is to calculate the GDP not using market exchange rates, but with rates that control for how much cheaper living costs are in one nation compared to another. For example, a haircut in Los Angeles might be 20 dollars, but does not cost 3,200 rupees in Karachi. This adjustment yields a much better number, the GDP at Purchasing Power Parity or PPP. The World Bank collects pricing data around the world and creates this conversion table every five years or so. It last did so in 2017, at that time they found Pakistan’s GDP per capita to be 4,975 dollars at PPP, while Bangladesh was 4,392 and India was 6,149. The World Bank also looked at how much consumption occurred in every country and found those numbers to be 3,369 dollars in Bangladesh per capita, 4,169 in India, and 4,580 in Pakistan. As recently as 2017, Pakistanis were consuming at much higher levels than either India or Bangladesh, meaning their living standard was significantly better in a material sense.
There is a second and huge flaw in Pakistan’s statistics. GDP is not an easy thing to measure. It is in fact a very complex calculation that requires a very sophisticated database and statistical gathering techniques. The first GDP measurements were not attempted till the 1930’s in the US. A critical first step to calculating the GDP is describing the elements that make up the economy. This is called “basing”. As economies change over time with the introduction of new firms, industries, and products, this base needs to be updated through a process called “rebasing”. If not done frequently, much economic activity simply isn’t captured in the GDP accounts. As this is critical information, most advanced economies rebase their GDP every year. Emerging economies usually rebase every few years. Pakistan however, rebases very rarely. It did so in 1980, then twice under Musharraf in 2000 and 2006. It has not rebased in 15 years. This means that Pakistan’s economic statistics, especially with regards to total GDP, GDP per capita, and annual growth rate are nearly worthless. When the GDP was rebased in 2000, it was found the economy was 22% larger than the official numbers using the 1980 base had indicated. In 2006 the error was 8%. It is likely that the current error is also massive, perhaps 25% or more. This would make Pakistan’s current GDP per capita at PPP probably in the 6,500-7,000 dollar range, approximately the same as India’s, and much higher than Bangladesh. This would also correspond much better to actual consumption data.
What to make of Bangladesh’s higher life expectancy and growth rate of economy in last decades? Both are valid statistics, but have major limitations when it comes to material standard of living. Life expectancy reflects multiple factors, not just economic wealth. For example, Costa Rica has a higher life expectancy than the US does, but the US is much richer. Growth rates are just annual pace of change, but do not tell you about actual standard of living. Bangladesh has had a faster growth rate than Switzerland or the US for the last 20 years, but remains far poorer.
Pakistan went through three rough economic years starting in 2018, as a balance of payment crisis triggered a massive rupee devaluation, high rates of inflation, and the COVID pandemic slowed a nascent recovery. But the stars are now lining up for the economy to fire on all cylinders. Growth this fiscal year ending in June 2021 is likely to exceed expectations, perhaps reaching 4%, and the country is now well set for faster and sustained growth for the rest of the decade. To achieve developed country status, GDP needs to cross 25,000 dollars per capita, a number that can be reached with 25 years of 7% growth. That should be the singular goal of the government’s economic policy. Combined with a vast expansion of education to all children, and prenatal and maternal care and infant care, Pakistan can achieve the real purpose it was created for: to provide a decent life to its citizens.
