Weak infrastructure, governance: Moody’s spots extra constraints

ISLAMABAD: Weak infrastructure and governance act as additional constraints for Pakistan, says Moody’s Investors Services (Moody’s).

Moody’s in its latest report,“ Sovereigns – South and Southeast Asia Population growth alone will not drive credit benefits for emerging economies“, stated that weak infrastructure and governance act as additional constraints for Bangladesh and Pakistan.

The policy emphasis on infrastructure development has been most evident in recent years in India and the Philippines. By contrast, a lack of fiscal capacity has constrained resources allocated to capital expenditure in Bangladesh and Pakistan, where infrastructure quality is significantly worse than for other large Asian economies

Moody’s downgrades 10 US banks, warns of possible cuts to others

The rating agency noted that six large developing Asian sovereigns – Bangladesh (B1 stable), India (Baa3 stable), Indonesia (Baa2 stable), Pakistan (Caa3 stable), the Philippines (Baa2 stable) and Vietnam (Ba2 stable) – will account for about one-third of the global population increase over the next 20 years, as well as 40percent of the rise in the working-age population.

There remains a considerable gap in the quality of education between Pakistan, Bangladesh and India compared with China and other peers in Southeast Asia, which contributes to labour-force participation imbalances.

Although there has been a general improvement across all these countries over the past two decades, as measured by the UNDP’s Human Development Index, there remains a considerable gap in the quality of education between Pakistan, Bangladesh, and India compared with China and peers in Southeast Asia. China leads the group by expected length of schooling at more than 14 years in 2021, followed by Indonesia, the Philippines and Vietnam, at or above 13 years. However, at nine years, the Philippines has recorded the highest average number of years of actual educational attainment, about half a year more than Indonesia and Vietnam and double the 4.5 years recorded for Pakistan.

Educational attainment in Indonesia is aided by prevailing fiscal rules that require 20 percent of the central government’s budget be allocated toward education.

This variation in the total mean years of schooling likely reflects gender disparities in educational achievement: the difference in the proportion of the male and female population5 that has completed an upper secondary education is most pronounced in India and Bangladesh; by contrast, a greater percentage of females than males has completed secondary school in the Philippines. While the gender gap is small in Pakistan, the proportion of the population with a secondary school education is very low irrespective of gender.

The gender imbalance in educational attainment appears to be a strong determinant of workforce participation, which is a relevant consideration in our assessment of risks from labour and income. The ratio of female-to-male workforce participation is low across South Asia, ranging from 30.4 percent in Pakistan to 45.1 percent in Bangladesh, with the comparatively high figure in the latter reflecting the outsized role of women in the large ready-made garments industry.

In China and Southeast Asia, the corresponding ratios are much higher at around 65 percent to 90 percent. Low workforce participation blunts potential support from higher labour inputs as overall population growth outpaces the rise in the number of actual workers, likely exacerbating income inequality and driving informal employment characterized by low wages and a lack of social protection.

Improving infrastructure in India and the Philippines reflects increased government capital expenditure, while fiscal constraints contribute to underdevelopment in Bangladesh and Pakistan.

Copyright Business Recorder, 2023