financial development index and global competitiveness index of the world economic forum and...

Financial Development Index of the

World Economic ForumPAKISTAN PERSPECTIVE

Amir JahangirMishal Pakistana partner institute of the Center for Global Competitiveness and Performance, World Economic Forum

October 25, 2012

How the World Looks at Pakistan!Economic Indicators

• An indicator is a factor that can be measured over time to help understand a situation.

• An indicator can provide a one-time measurement, or it can show a trend.

• Indicators can help support decision-making and action toward a goal.

• In the economic field, indicators can help us to measure either our own individual economic situation or the economic outlook or status of a community.

• They can help us make decisions and set goals for improved economic growth.

PAKISTAN ECONOMIC INDICATORS[WORLD ECONOMIC FORUM]

ECONOMIC FACTOR

RANK

2012 (out of 144)

2011 (out of

142)

1st Pillar: InstitutionsEthical behavior of firms 108 100Strength of auditing & reporting standards

86 103

Efficiency of corporate boards 111 101Protection of minority shareholder’s interests

81 88

Strength of investor protection (0-10) 29 288th Pillar: Financial market developmentAvailability of financial services 95 100Affordability of financial services 99 94Financing through local equity market 54 51Ease of access to loans 65 41Venture capital availability 55 45Soundness of banks 85 93Regulation of securities exchanges 55 70Legal rights index (0-10) 65 60

PAKISTAN ECONOMIC INDICATORS[WORLD ECONOMIC FORUM]

• World Leaders Discuss Issues

• Trends are formulated into policies

• Improving the State of the World

The Financial Development Report • provides a benchmarking tool

across a depth of information and a number of economies. Thus it allows countries to identify and develop workable solutions for building on existing strengths and addressing potential problematic areas.

• offers significant insight into how both emerging and advanced economies can successfully address their challenges and ultimately facilitate economic growth.

• Inaugural Publication: 2008• The 2012 Report will be: 5th

Edition• 2012 Report release date: 30

October ‘12

• The Development Report and the Financial Development Index (“the Index”) on which it is based provide a score and rank for 60 of the world’s lead-ing financial systems and capital markets.

• The Index analyses drivers of financial system development that support economic growth.

• Ultimately, it aims to serve as a tool for both advanced and emerging economies to benchmark themselves and thereby to identify and prioritize areas for reform.

• Total Pillars = 7• Sub Indices = 122• Total Countries = 60 (2011) 57

(2010)

The Financial Development Index defines financial development as the factors, policies, and institutions that lead to effective financial intermediation and markets, as well as deep and broad access to capital and financial services.

In accordance with this definition, measures of financial development are captured across the seven pillars of the Index:

1. Institutional environment: encompasses financial sector liberalization, corporate governance, legal and regulatory issues, and contract enforcement

2. Business environment: considers human capital, taxes, infrastructure, and costs of doing business

3. Financial stability: captures the risk of currency crises, systemic banking crises, and sovereign debt crises

4. Banking financial services: measures size, efficiency, and financial disclosure

5. Non-banking financial services: includes IPO and M&A activity, insurance, and securitization

6. Financial markets: contains foreign exchange and derivative markets, and equity and bond market development

7. Financial access: evaluates commercial and retail access.

Source: World Economic Forum

Factors, policies, and institutions: the foundational characteristics that allow the development of financial intermediaries, markets, instruments, and services.

Financial intermediation: the variety, size, depth, and efficiency of the financial intermediaries and markets that provide financial services.

Financial access: access by individuals and businesses to different forms of capital and financial services.

Table 2: Bottom 10 in overall Index rankings, 2011 vs. 2010

Table 1: Top 10 in overall Index rankings, 2011 vs. 2010

ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Factors, policies, and institutions1st pillar: Institutional environment 54 57Financial sector liberalization 55 55Corporate governance 50 53Legal and regulatory issues 50 52Contract enforcement 50 512nd pillar: Business environment 50 56Human capital 56 56Taxes 54 56Infrastructure 52 58Cost of doing business 31 453rd pillar: Financial stability 52 52Currency stability 27 25Banking system stability 23 30Risk of sovereign debt crisis 57 59Overv

iew

Development Advantage Improvement Decline

Financial intermediation4th pillar: Banking financial services 48 49Size index 41 42Efficiency index 43 43Financial information disclosure 48 525th pillar: Non-banking financial services 56 54IPO activity 51 51M&A activity 53 57Insurance 53 53Securitization 43 276th pillar: Financial markets 36 37Foreign exchange markets n/a n/aDerivatives markets n/a n/aEquity market development 40 48Bond market development 36 30

ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Overv

iew


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Financial access

7th pillar: Financial access 55 57

Commercial access 39 44

Retail access 47 48

Overv

iew


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

1st pillar: Institutional environment

Financial sector liberalization1.01: Capital account liberalization 49 53

1.02: Commitments to WTO agreement on trade in services

49 53

1.03: Domestic financial sector liberalization

50 471st P

illar


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Corporate governance1.04 Extent of incentive-based compensation

53 54

1.05 Efficacy of corporate boards 54 481.06 Reliance on professional management

47 49

1.07 Willingness to delegate 46 481.08 Strength of auditing and reporting standards

47 52

1.09 Ethical behavior of firms 49 481.10 Protection of minority shareholders’ interests

47 46

1st P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Legal and regulatory issues1.11 Burden of government regulation 24 321.12 Centralization of economic policymaking

27 28

1.13 Regulation of securities exchanges 40 411.14 Property rights 50 551.15 Intellectual property protection 44 481.16 Diversion of public funds 43 411.17 Public trust of politicians 40 421.18 Corruption perceptions index 52 581.19 Strength of legal rights index 30 341.20 Central bank transparency 42 42

1st P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Contract enforcement1.21 Effectiveness of law-making bodies 45 43

1.22 Judicial independence 39 35

1.23 Irregular payments in judicial decisions

46 42

1.24 Time to enforce a contract 52 55

1.25 Number of procedures to enforce a contract

54 56

1.26 Strength of investor protection index

18 19

1.27 Cost of enforcing contracts 27 27

1st P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

2nd Pillar: Business Environment

Human capital

2.01 Quality of management schools 44 45

2.02 Quality of math and science education

41 43

2.03 Extent of staff training 55 55

2.04 Local availability of specialized research & trg

54 55

2.05 Brain drain and ease of hiring foreign labor

41 38

2.06 Tertiary enrollment 57 59

2nd P

illar


Taxes2.07 Irregular payments in tax collection 55 59

2.08 Distortive effect of taxes and subsidies on competition

38 46

2.09 Marginal tax variation n/a 53

2.10 Time to pay taxes 51 55

ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

2nd P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Infrastructure2.11 Quality of overall infrastructure 49 53

2.12 Quality of telephone infrastructure 49 54

2.13 Internet users 52 54

2.14 Broadband Internet subscribers 55 56

2.15 Telephone lines 55 56

2.16 Mobile telephone subscribers 23 572nd P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Cost of doing business2.17 Cost of starting a business 26 422.18 Cost of registering property 48 572.19 Cost of closing a business 5 52.20 Time to start a business 32 402.21 Time to register property 43 472.22 Time to close a business 33 372nd P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Currency stability3.01 Change in real effective exchange rate

29 29

3.02 External vulnerability indicator 12 63.03 Current account balance to GDP 52 533.04 Dollarization vulnerability indicator 34 303.05 External debt to GDP (developing economies)

15 16

3.06 Net international investment position to GDP

n/a n/a

3rd Pillar: Financial Stability

3rd P

illar


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Banking system stability3.07 Frequency of banking crises 1 13.08 Financial strengths indicator 48 523.09 Aggregate measure of real estate bubbles

n/a n/a

3.10 Financial Stress Index 28 313.11 Tier 1 capital ratio 15 213.12 Output loss during banking crises 1 13rd P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Risk of sovereign debt crisis3.13 Local currency sovereign rating 55 58

3.14 Foreign currency sovereign rating 55 58

3.15 Aggregate macroprudential indicator 55 55

3.16 Manageability of public debt 31 35

3.17 Credit default swap spreads 50 54

3rd P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Size index4.01 Deposit money bank assets to GDP 45 474.02 Central bank assets to GDP 9 84.03 Financial system deposits to GDP 43 454.04 M2 to GDP 46 494.05 Private credit to GDP 46 484.06 Bank deposits to GDP 45 484.07 Money market instruments to GDP 26 28

4th Pillar: Banking Financial Services

4th P

illar


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Size index4.08 Aggregate profitability indicator 50 494.09 Bank overhead costs 24 224.10 Public ownership of banks 1 14.11 Bank operating costs to assets 42 424.12 Nonperforming bank loans to total loans

37 48


4th P

illar


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Financial information disclosure4.13 Private credit bureau coverage 48 49

4.14 Public credit registry coverage 16 17

4th P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

IPO activity5.01 IPO market share 51 53

5.02 IPO proceeds amount 53 54

5.03 Share of world IPOs 33 31

5.04 M&A market share 50 53

5.05 M&A transaction value to GDP 52 58

5.06 Share of total number of M&A deals 48 51

5th Pillar: Non-banking financial services

5th P

illar


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Insurance5.07 Life insurance density 47 45

5.08 Non–life insurance density 55 575.09 Real growth of direct insurance premiums

n/a 44

5.10 Life insurance coverage 28 27

5.11 Non–life insurance coverage 27 295.12 Relative value-added of insurance to GDP

45 495th P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Securitization

5.13 Securitization to GDP 43 22

5.14 Share of total number of securitization deals

31 31

5th P

illar



ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Foreign exchange markets6.01 Spot foreign exchange turnover n/a n/a6.02 Outright forward foreign exchange turnover

n/a n/a

6.03 Foreign exchange swap turnover n/a n/aDerivatives markets6.04 Interest rate derivatives turnover: Forward rate agreements

n/a n/a

6.05 Interest rate derivatives turnover: Swaps

n/a n/a

6.06 Interest rate derivatives turnover: Options

n/a n/a

6.07 Foreign exchange derivatives turnover: Currency swaps

n/a n/a

6.08 Foreign exchange derivatives turnover: Options

n/a n/a

6th Pillar: Financial Markets6

th P

illar


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Equity market development6.09 Stock market turnover ratio 23 37

6.10 Stock market capitalization to GDP 42 43

6.11 Stock market value traded to GDP 26 33

6.12 Number of listed companies per 10,000 people

36 36

6th P

illar


6th Pillar: Financial Markets

ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Bond market development6.13 Private domestic bond market capitalization to GDP

39 41

6.14 Public domestic bond market capitalization to GDP

27 25

6.15 Private international bonds to GDP 51 54

6.16 Public international bonds to GDP 40 436.17 Local currency corporate bond issuance to GDP

20 116th P

illar


6th Pillar: Financial Markets

Commercial access7.01 Financial market sophistication 49 50

7.02 Venture capital availability 33 33

7.03 Ease of access to credit 22 30

7.04 Financing through local equity market 30 39

7.05 Ease of access to loans 25 28

7.06 Foreign direct investment to GDP 36 47

ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

7th Pillar: Financial Access

7th P

illar


ECONOMIC FACTOR

RANK

2010 (out of 57)

2011 (out of

60)

Retail access7.07 Market penetration of bank accounts 38 40

7.08 Commercial bank branches 41 42

7.09 Total number of ATMs 46 487.10 Total number of point of sale (POS) devices

35 37

7.11 Microfinance institution (MFI) borrowers’ penetration rate

17 127th P

illar


7th Pillar: Financial Access

Amir JahangirChief Executive Officer

Mishal PakistanMishal Pakistan is the Institutional Partner of the Center for Global Competitiveness and Performance, World Economic Forum.

Google Voice: +1-708-808-7243Pak Cell: +92-300-855-5161email: [email protected] Profile: http://www.linkedin.com/in/jahangirhttp://www.amirjahangir.comhttp://twitter.com/amirjahangirhttp://www.meet-the-ygl.com/stories/amir-jahangir.htmlhttp://globalcompetitivenesssperformance.blogspot.com/

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