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Wednesday, April 17, 2024

Pakistan-Malaysia ties: Beginning of a new era

Dr. Omer Javed |

Similarities Between Malaysia and Pakistan

Malaysia and Pakistan share a somewhat similar history. Like Pakistan, Malaysia got its independence from the British, 10 years after Pakistan in 1957. Similarly, the two federations lost a portion of its countries – East Pakistan (now Bangladesh) in the case of Pakistan in 1971, while Singapore was expelled from Malaysia a little earlier in 1965.

Malaysia’s Sustained Growth

While the size of Pakistan is around two-and-a-half times more than Malaysia at 881,913 square km, the per capita income (or GDP per person) in 2018 of Malaysia was around seven times more at US$11,075. Yet in 1960 the gap between the two countries was still two-and-a-half-times, but since then, for each year, the growth in per capita income of Malaysia was around three times more than Pakistan.

Overall, the sound macroeconomic position of Malaysia over the years has continued to provide the country with the strong basis for the growth in per capita income.

Hence, while the per capita income of Pakistan could only grow from around UD$90 in 1960 to US$490 (around four-and-a-half times) by the end of the century, that of Malaysia increased by 14 times; and even since the start of the millennium, Pakistan could not get anywhere near the Malaysian per capita income, since the increase of around three times by Pakistan was matched by Malaysia.

Mahathir’s Towering Leadership

The high level and overall sustained growth of per capita income of Malaysia, owes a lot both to the strength of leadership and policy marking of the current prime minister of the country, Mr. Mahathir bin Mohamad, who previously remained prime minister for almost two decades (1981-2003); especially in the way he dealt with the financial crisis of late 1990s, where he successfully led the country out of crisis at the back of home-grown solutions rather than following the neoliberal policy agenda of the International Monetary Fund (IMF).

Comparison Between Two Countries

Indeed, Pakistan can learn from the economic experience of Malaysia, especially in the way the currency depreciation issue was dealt. At the same time, the phenomenal rise in per capita income has to do with the immense population difference between the two countries, whereby Pakistan’s population is around six times more than Malaysia’s at approximately 200 million people.

Read more: Naya Pakistan’s mixed economic policy signals? – Dr. Omer Javed

Overall, the sound macroeconomic position of Malaysia over the years has continued to provide the country with the strong basis for the growth in per capita income. A little comparison below, of the recent situation of some of the indictors in this regard, will help highlight this further:

Table 1: Leading macroeconomic indicators of Malaysia and Pakistan (2018)
  Pakistan Malaysia
Consumer prices (% change per annum; average) 5.1 1.0
Gross national savings rate (%) 9.6 26.6
Average real wages (% change per annum) 1.2 2.5
Unemployment rate (%) 6.0 3.3
Budget balance (% of GDP) -5.1 -3.7
Public debt (% of GDP) 61.8 51.8
Current account balance (% of GDP) -5.3 2.2
Exports of goods and services (US$ in billion) 54.9 216.4
Inward direct investment (US$ in billion) 2.6 9.0
Foreign-exchange reserves (US$ in billion) 13.8 99.9
Poverty headcount ratio at national poverty lines (% of population) 24.3 0.4
Source: State Bank of Pakistan; The Economist (World in Figures). World Development Indictors

Moreover, the overall economic institutional quality (EIQ) of Malaysia- measured by taking Economic Freedom Index (EFI) of the Heritage Foundation, as is routinely taken in economic research- has also been a lot better than Pakistan, and indicates as to why economic institutional quality is so important for both macroeconomic stability and economic growth; a relationship that has been amply pointed out in economic literature over the last two decades or so.

Read more: Where is the discussion on policy? – Dr. Omer Javed

Comparison of some of the economic institutional quality determinants is being tabulated and illustrated, which will give further corroborating insight into this consequence:

Table 2: Economic institutional quality determinants
  Pakistan Malaysia
EFI (EIQ) Score 55.0 74.0
EFI World Score 131 22
Rule of Law
Property rights 41.5 84.1
Government integrity 30.6 55.4
Judicial effectiveness 40.2 68.2
Regulatory Efficiency
Business freedom 56.1 83.9
Labor freedom 41.8 74.4
Monetary freedom 72.6 78.6
Government Size
Government spending 87.6 83.2
Tax burden 80.5 85.6
Fiscal health 49.2 82.4
Open Markets
Trade freedom 64.8 82.0
Investment freedom 55.0 60.0
Financial freedom 40.0 50.0
Source: The Heritage Foundation

As the relationship between the two countries takes the much-needed route of collaborating at the economic front, the above analysis will help understand the gaps and opportunities; in turn, both countries making use of this valuable economic learning curve, and ways in which each country can assist the other for mutual economic benefit.

Dr. Omer Javed holds Ph.D. in Economics from the University of Barcelona, Spain. A former economist at International Monetary Fund, he is the author of Springer published book (2016), ‘The economic impact of International Monetary Fund programmes: institutional quality, macroeconomic stabilization, and economic growth’. He tweets at @omerjaved7. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.