Is Pakistan following Malaysia or North Korea in global trade?
Pakistan should benchmark trade policies with Malaysia; focus on social sector
PHOTO: REUTERS
ISLAMABAD:
The Pakistan Tehreek-e-Insaf (PTI) government’s recent pronouncements as to where it wants to be and what it needs to avoid show that there is some clarity about future direction.
Prime Minister Imran Khan considers Malaysia as a role model to be followed while Asad Umar, before quitting as finance minister, warned that “Pakistan has to be part of the global community. If we don’t, then …we will live in isolation like North Korea”.
Knowing the direction is important but how to get there is much more challenging. Since Malaysia and North Korea have been following very different routes, it should be no-brainer as to the way forward for Pakistan. But it is easier said than done.
In practice, although the country may not be aware, in many areas its present policies are closer to those followed by North Korea than those of Malaysia. Therefore, it needs a complete rethink of policies if it wants to emulate Malaysia and not go the North Korean way.
Let’s look at some key differences between Malaysian and North Korean approaches. Unlike North Korea, Malaysia is very open to trade. Its trade-to-GDP ratio is 128%. Malaysia’s openness has allowed it to deeply integrate into the global value chain, which now accounts for over 70% of global trade. Forty per cent of Malaysia’s exports comprise goods of foreign origin.
On the other hand, North Korea is a very closed economy. It does not normally release international trade data but it is evident that it is not part of any global chain and whatever little trade it has is with just one country ie China.
How does Pakistan compare with the two countries? Many in Pakistan think that the country’s trade policy is like Malaysia’s but figures do not support this idea. With its current high taxes on international trade, inefficient trade procedures and being restricted to purchasing goods and services from cheapest sources, Pakistan’s trade openness is at 25.14% (as against world average of 88.5%). This will make Pakistan closer to North Korea than Malaysia.
Secondly, Malaysia is using its geographical location to its advantage to become a global hub for trade. Through increasing regional integration with other Southeast Asian countries, Malaysia was able to reduce regional tensions and used its resources for investment in economic and human development.
On the other hand, North Korea has fenced most of its borders and has been keeping regional tensions high. Here again, Pakistan seems to be getting closer to North Korea as it has already fenced most of its borders and is in the process of doing the same for the remaining.
Thus, in terms of regional integration, or the lack thereof, Pakistan seems to be following North Korea rather than Malaysia. By isolating itself from the region, Pakistan continues to heighten its regional tensions and lock its rare resources.
If spending on social sectors is taken into consideration, again Pakistan is more in proximity to North Korea than Malaysia. According to the World Bank, the average value of Pakistan’s public spending on education (in 2017) as a percentage of GDP was 2.76 while that of Malaysia was 4.78.
If Pakistan wants to follow the Malaysian model, it needs to at least double its spending on social sectors.
So what is the way forward to avoid being closer to North Korea and becoming a country following Malaysia?
First, instead of becoming a regional pariah, Pakistan must integrate with the neighbouring countries. Increasing regional economic integration, even unilaterally, would bring peace and it is the shortest way to achieve economic growth.
Secondly, Pakistan should benchmark its trade policies with Malaysia and over the next five to seven years try to adopt them.
Finally, like Malaysia, Pakistan needs to devote more resources to social sectors. Without adequate human resources, Pakistan can never be competitive. Better-qualified and healthy people can get the country out of the current predicament.
The PTI government has correctly identified the direction but the more important thing is to practically change the existing policies to get there.
The writer served as Pakistan’s ambassador to the WTO from 2002 to 2008
Published in The Express Tribune, April 22nd, 2019.
The Pakistan Tehreek-e-Insaf (PTI) government’s recent pronouncements as to where it wants to be and what it needs to avoid show that there is some clarity about future direction.
Prime Minister Imran Khan considers Malaysia as a role model to be followed while Asad Umar, before quitting as finance minister, warned that “Pakistan has to be part of the global community. If we don’t, then …we will live in isolation like North Korea”.
Knowing the direction is important but how to get there is much more challenging. Since Malaysia and North Korea have been following very different routes, it should be no-brainer as to the way forward for Pakistan. But it is easier said than done.
In practice, although the country may not be aware, in many areas its present policies are closer to those followed by North Korea than those of Malaysia. Therefore, it needs a complete rethink of policies if it wants to emulate Malaysia and not go the North Korean way.
Let’s look at some key differences between Malaysian and North Korean approaches. Unlike North Korea, Malaysia is very open to trade. Its trade-to-GDP ratio is 128%. Malaysia’s openness has allowed it to deeply integrate into the global value chain, which now accounts for over 70% of global trade. Forty per cent of Malaysia’s exports comprise goods of foreign origin.
On the other hand, North Korea is a very closed economy. It does not normally release international trade data but it is evident that it is not part of any global chain and whatever little trade it has is with just one country ie China.
How does Pakistan compare with the two countries? Many in Pakistan think that the country’s trade policy is like Malaysia’s but figures do not support this idea. With its current high taxes on international trade, inefficient trade procedures and being restricted to purchasing goods and services from cheapest sources, Pakistan’s trade openness is at 25.14% (as against world average of 88.5%). This will make Pakistan closer to North Korea than Malaysia.
Secondly, Malaysia is using its geographical location to its advantage to become a global hub for trade. Through increasing regional integration with other Southeast Asian countries, Malaysia was able to reduce regional tensions and used its resources for investment in economic and human development.
On the other hand, North Korea has fenced most of its borders and has been keeping regional tensions high. Here again, Pakistan seems to be getting closer to North Korea as it has already fenced most of its borders and is in the process of doing the same for the remaining.
Thus, in terms of regional integration, or the lack thereof, Pakistan seems to be following North Korea rather than Malaysia. By isolating itself from the region, Pakistan continues to heighten its regional tensions and lock its rare resources.
If spending on social sectors is taken into consideration, again Pakistan is more in proximity to North Korea than Malaysia. According to the World Bank, the average value of Pakistan’s public spending on education (in 2017) as a percentage of GDP was 2.76 while that of Malaysia was 4.78.
If Pakistan wants to follow the Malaysian model, it needs to at least double its spending on social sectors.
So what is the way forward to avoid being closer to North Korea and becoming a country following Malaysia?
First, instead of becoming a regional pariah, Pakistan must integrate with the neighbouring countries. Increasing regional economic integration, even unilaterally, would bring peace and it is the shortest way to achieve economic growth.
Secondly, Pakistan should benchmark its trade policies with Malaysia and over the next five to seven years try to adopt them.
Finally, like Malaysia, Pakistan needs to devote more resources to social sectors. Without adequate human resources, Pakistan can never be competitive. Better-qualified and healthy people can get the country out of the current predicament.
The PTI government has correctly identified the direction but the more important thing is to practically change the existing policies to get there.
The writer served as Pakistan’s ambassador to the WTO from 2002 to 2008
Published in The Express Tribune, April 22nd, 2019.