- Pakistan, Sri Lanka, India, and Bangladesh attract little FDI, and have very low exports, says Moody’s report
- Pakistan’s ‘much weaker’ infrastructure compared to India’s leads to higher costs to trade, says report
Low exports and lack of foreign direct investment mean Pakistan and Sri Lanka are among the South Asian countries that are most vulnerable to balance of payments (BoP) crises, international credit ratings agency Moody’s Investors Service said on Thursday.
In its latest report, Moody’s said Pakistan, Sri Lanka, Bangladesh and India have very low exports as a share of their respective GDPs and attract little foreign direct investment (FDI). This means the countries are “not well integrated in global value chains.”
It said low levels of trade openness and FDI increase South Asia’s vulnerability to shocks and constrain longer-term growth prospects, which can also cause social risks.
“Pakistan and Sri Lanka are most vulnerable among the four sovereigns [to BoP crises],” the report said.
“Both have experienced significant BOP pressures because of very low exports and FDI, combined with much weaker policy management and higher political risk.”
Moody’s said India was the least vulnerable country to BoP crises due to its larger and more diversified export sector, adding that New Delhi also had better macroeconomic policy management in place.
The report said restrictive trade policies and poor infrastructure are the main causes that impede a country’s export sector.
“Bangladesh, Pakistan and Sri Lanka have much weaker infrastructure compared with India, contributing to high costs to trade,” it said, adding that South Asian nations’ market access to other countries is limited on account of them having fewer trade agreements.
Moody’s said low trade openness will weigh on growth potential and the ability to create jobs, and add to social risks.
“This will affect all four countries,” the report said. “But, Bangladesh, India, Pakistan face greater challenges than Sri Lanka as young and growing populations necessitate the creation of significant numbers of jobs every year.”
The report said the South Asian countries would require a long-term commitment to “difficult reforms” to achieve their export potential.
“We believe that South Asian sovereigns are unlikely to realize their export potential, at least not in the near to medium term,” Moody’s said.
“Policies that are inconsistent with a more outward-oriented position have been in effect for several decades and cannot be quickly overcome.”
Source: arabnews.pk