Pakistan has slipped three notches on the Financial Development Index (FDI) and stood at 58th position out of 62 economies surveyed by the Global Economic Forum, highlighting vulnerabilities in the country’s financial system.
Compared to last year, Pakistan has performed badly on the pillars dealing with government policies and involving state institutions while its performance in the indicator of access to finance, both commercial and retail, has been worse, according to the FDI 2012 report.
Last year, the report ranked the country 55th out of 60 nations surveyed. This year’s ranking is based on more than 120 variables spanning institutional and business environment, financial stability, size and depth of capital markets and others.
In many of the variables that could have become a source of attracting foreign investment, the country’s performance has been quite low. In taxes and infrastructure, it has got 60th position, doing better than only two countries. In the area of public trust in politicians, the rank is 44th while in corruption perception the rank is 57th.
The report analysed the drivers of financial system development in advanced and emerging economies to serve as a tool for countries to benchmark themselves and establish priorities for reforms, said Amir Jahangir, Chief Executive Officer of Mishal Pakistan, a country partner institute of the Centre for Global Competitiveness and Performance, World Economic Forum.
While the performance in many indicators is worse, there are certain areas where the country enjoys development advantages. Ironically, in the indicator of cost of closing a business, Pakistan has maintained its 5th position for the second year in a row. It has also kept the 1st rank in public ownership of banks.
In legal and regulatory issues, the country has shown significant gains with improvement in government regulations and got 21st position compared to 32nd last year. In regulation of securities exchanges, the rank has moved up by 5 notches to 37.
Another area where the country has shown improvement of 14 ranks is the real growth of direct insurance premiums, where it stands at 30th place.
However, Pakistan has fared badly in various key indicators, like intellectual property protection, where it stands at 53rd position compared with 48th last year and effectiveness of law-making bodies, where it is at 47th place, down from 43rd.
Owing to the distortive effect of taxes and subsidies on competition, the country has come down from 46th to 53rd position. In terms of internet users, the country has recorded a decline in internet penetration, going down from 54th to 61st place.
Though the world showed improvement in the banking system, such as application of tier-1 capital ratios and decrease in non-performing loans, Pakistan has dropped in these two indicators, securing 26th and 57th ranks.
In the area of deposit money bank assets to GDP, the country stands at 52nd position and in private credit to GDP it has come down from 48th to 56th rank.
The report shows an alarming increase in banks overhead costs, as a percentage of total assets, where the rank has dropped from 22nd to 45th place, impacting the profitability of banks in coming years.
In equity market development, the country has also not been impressive. In the area of stock market capitalisation to GDP, it has slipped from 43rd to 50th rank, in stock market’s traded value to GDP from 33rd to 43rd position and in number of listed companies per 10,000 people from 36th to 43rd position.
The worst news comes in the area of commercial and retail access to finance, as the rank in ease of access to credit has deteriorated to 43 from 30 last year. Similarly, in the ease of access to loan, the report has put the country on 40th position compared to 28th in 2011.
In the case of market penetration of bank accounts, showing the number of commercial bank accounts per 100,000 adults, the country has lost 19 positions and stands at 59th place. Simultaneously, the debit card penetration has also lost development advantage with the country falling from 37th to 59th position, showing weak growth in the banking system.
Published in The Express Tribune, November 1st, 2012.