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Serious issues in WB’s doing business report

The World Bank should no longer publish its Doing Business index, owing to its flawed design and vulnerability to manipulation. The Bank also owes the developing world an apology for all the harm this misleading and problematic tool has already caused.’ – ‘Stop doing business’ published in Project Syndicate by Jayati Ghosh

The government was quick to take pride and credit when the World Bank’s flagship ‘Doing Business 2020’ report indicated that Pakistan’s ranking in its ‘ease of doing business index’ had improved by 28 positions, and had gone to 108th position as compared to its previous report. Yet there is all too quiet from the government circles as the doing business index is faced by serious methodological challenge – and not for the first time that questions have been raised on its methodology – with regard to underlying data concerning four countries – China, the United Arab Emirates, Azerbaijan, and Saudi Arabia.

In a recent article in Financial Times ‘World Bank suspends its business climate index over data “irregularities”’, Tom Wilson highlighted in this regard: “Saudi Arabia recorded the greatest improvement in its business ranking in the 2020 report, rising to position 62 from 91 the previous year. China was also among the top 10 most improved business environments in 2020, rising to number 31 from 46.” Given such marked change in roughly one year, the government of Pakistan should have questioned the stark improvement in its ranking, rather than getting on the bandwagon of good economic management, when during most of that time the focus of economic team was mostly concerned about macroeconomic crisis of a near-default situation on debt payments.

Subsequent to brouhaha on this, the World Bank has suspended the Report, indicating in a recent ‘Data Irregularities Statement’ released on August 27 that the Report will stay ‘paused’ till assessment has been completed. In this regard, the statement indicated: “A number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019… [and therefore] we are immediately… [a] conducting a systematic review and assessment of data changes that occurred subsequent to the institutional data review process for the last five Doing Business reports… [and b] have asked the World Bank Group’s independent Internal Audit function to perform an audit of the processes for data collection and review for Doing Business and the controls to safeguard data integrity. We will act based on the findings and will retrospectively correct the data of countries that were most affected by the irregularities.”

Having said that, concerns on the methodology had been raised in the past as well. A January 2018 article “The World Bank’s ‘ease of doing business’ report faces tricky questions” published in the Economist highlighted the fact that “from 2014 to 2016, the bank made 12 big methodological changes, broadening some indicators and adding others”, which in turn should have added more than a pinch of caution to the government’s enthusiasm in celebrating the advances they achieved in the 2020 edition of the Report.

Such practice of caution by the government would have been all the more pertinent given the fact that in the 2018 Doing Business Report, drastic changes were made in relation to Chile and India, when most indicators in the index are of an institutional nature, where determinants of institutional change are mostly slow-moving, which in most cases would have taken years to see such drastic changes.

Tom Wilson in the same article highlighted about the issues in the 2018 Report for the two countries as: “In 2018, Paul Romer, the World Bank’s chief economist, resigned after alleging in a media interview that Chile’s ranking, which dropped from 34 in 2014 to 55 in 2018, may have been deliberately skewed by World Bank staff ideologically opposed to Chilean president Michelle Bachelet’s socialist government. Conversely, in the 2018 report, India jumped to position 100 from 130 the year before… raised questions over India’s performance, arguing that the large improvement was based on a change in World Bank methodology and not an equivalent change in the business environment.”

It is, however, not known whether the government in Pakistan was oblivious to such earlier concerns on the authenticity and reliability of the ease of doing business index as policy input; or was it more than naivety, and rather an important move, in the overall election economics end-game for the short-sighted politicians. Including such concerns were the analyses made by Center for Global Development’s Justin Sandefur and Divyanshi Wadhwa who, according to Jayati Ghosh – in her same article – pointed out: “compared the official Doing Business rankings with their own re-created rankings from 2006 to 2018, based on a constant sample of countries and a consistent methodology. They found that the decline in Chile’s ranking during the Bachelet presidencies and its rise when Piñera was in office resulted entirely from methodological tinkering. Chile’s laws and policies barely changed.’

The government in Pakistan, like many governments across the world should not use such basis for attracting foreign investment, because the actual ground experience of foreign companies may be too far off from the rosy picture of the Report, and could in fact, increase risk perception based on possible stark difference between ‘actual’ and ‘fictional’ ease of doing business determinants. Reliance of policy on this index may in fact create policy complacency, when what is needed is even more hard work given the pandemic. This should also be a lesson for policymakers to revisit their enthusiasm over gains attained through similar economic rankings by other multilateral development partners, and global credit risk agencies. Rather it should look to corroborate economic condition, with external based rankings, grounded in a much stronger and sound domestic data agency, to get a fairer picture of achievements and challenges.

Dr Omer Javed, "Serious issues in WB’s doing business report," Business Recorder. 2020-09-18.
Keywords: Economics , World Bank , Economic management , Economic condition , Tom Wilson , Jayati Ghosh , China , 2018

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