The International Monetary Fund (IMF), in last month’s “World Economic Outlook: Navigating Global Divergences,” report provided projections on the economic growth of global economies. The report underscores the persistent obstacles in the global recovery, including the pandemic and Russia’s invasion of Ukraine, underscoring the sluggish and uneven progress.

The report exhibits that over three years have passed since the global economy experienced a major shock, and the healing process is still ongoing. However, there are noticeable divergences in growth rates across different regions.

The divergence in growth is evident as global growth falls short of the average rate from 2000-2019, which stood at 3.8 per cent. According to projections, the global growth rate is anticipated to decline from 3.5pc in 2022 to 3.0pc in 2023 and 2.9pc in 2024. It is important to note that even though there was some economic resilience earlier this year, with a rebound in reopening and progress in reducing inflation from last year’s highs, it is still too early to feel entirely at ease.

Based on the IMF’s projections for FY23, Pakistan’s growth is expected to reach 2.5pc, which is lower than the projected growth of other South Asian economies, excluding Afghanistan and Sri Lanka. Interestingly, Bhutan is the only country with a projected growth rate of less than 5pc, while the rest are at 5pc or above.

In 1960, Singapore had a GDP per capita that was 9.7 times that of Pakistan, and currently, it is 43.86 times higher

Economic growth is crucial as it is intricately connected to addressing unemployment, poverty and income inequality. The impact of short-term growth is also reflected in the development process, as it contributes to improving human development.

Consider, for instance, Singapore, a country smaller in size and population than Lahore. Nevertheless, it has secured a spot among the top ten countries with the highest GDP per capita by sustaining remarkable economic growth for the past six decades.

Pakistan has consistently maintained an average GDP per capita growth rate of 2.3pc from 1960 to 2022 while experiencing a shaky GDP growth rate of 5pc. However, Singapore has consistently maintained an average GDP per capita growth of 5pc from 1960 to 2022, with a steady GDP growth rate of 7pc.

Singapore’s impressive GDP per capita growth has led to it soaring from $3,611 in 1960 to an impressive $67,359 in 2022. In 1960, Singapore had a GDP per capita that was 9.7 times that of Pakistan, and currently, it is 43.86 times that of Pakistan.

Singapore’s success and Pakistan’s stagnation can be compared using growth-driven macroeconomic metrics. Singapore has grown rapidly due to its strong emphasis on savings, investing in capital, attracting foreign direct investment (FDI), and maintaining a robust legal framework.

The increased gross savings create a surplus of liquidity, which, in turn, fuels domestic investment. This is further supported by political stability and a strong rule of law. The investment-friendly policies accompanying the rule of law and political stability have attracted a significant amount of FDI. In 2022, Singapore witnessed a substantial net inflow of FDI amounting to $140.84 billion, surpassing Pakistan’s exports of goods and services by 3.6 times.

It is pertinent for Pakistan to rationalise the savings as a percentage of GDP carefully. At present, the gross savings as a share of GDP stands at 10pc, whereas Singapore managed to reach an impressive 43pc in 2022. The increased national saving plays a crucial role in managing the demand and softens the import burden, which in turn can help ease the current account deficit and stabilise the foreign exchange market.

The sizeable count of national savings results in a surplus of liquidity and reduces the cost of borrowing, which should be channelled into productive investments. Over the past decade, Pakistan’s gross capital formation as a share of GDP remained stagnant at 15pc, whereas Singapore recorded a higher percentage at 25pc.

The rule of law serves as a valuable tool to maximise the benefits of domestic investment and instil trust in risk-averse investors, which is rooted in enduring political stability.

At present, Singapore has achieved an impressive score of 99 percentile on the rule of law scale due to its robust legal framework. In contrast, Pakistan lags behind with a score of 25 percentile.

The solid foundation created by enhanced capital formation and a robust legal framework has a favourable effect on attracting global investors and potentially boosting foreign direct investment. Based on the data, Singapore has attracted a significant amount of FDI in 2022, amounting to $140.84bn. This places Singapore as the third highest recipient of FDI globally, trailing only behind the US and China. Meanwhile, Pakistan has only managed to reach a total of $1.34bn.

Pakistan has also outlined a comprehensive plan in Vision 2047, aiming to become one of the top ten economies in the world by the centenary year of independence. Pakistan needs a favourable stance on these macroeconomic indicators to make substantial strides towards its goal.

In order to accomplish this objective, it is essential to implement a set of comprehensive long-term policy measures within an environment that promotes savings, attracts domestic and foreign investment, upholds the rule of law, and maintains enduring political stability.

The writer is a research associate at the Center of Economic Planning and Development (CEPD), Minhaj University, Lahore.

Email: waqas.eco@mul.edu.pk

X: @waqasshair689

Published in Dawn, The Business and Finance Weekly, November 20th, 2023