New research puts SL at 89th in ‘Doing Business’ index

By Nishel Fernando

A research carried out by the Centre for Global Development (CGD), a US nonprofit think tank that focuses on international development, shows that Sri Lanka should have been ranked 89th in the World Bank (WB) Ease of doing Business Index 2018, as opposed to the official ranking of 111 it was given late last year.

The researchers pointed out that WB had made 12 significant methodological changes in the index during 2014-2016, which included broadening some indicators and adding new indicators, and that these methodological changes had cost Sri Lanka 22 positions in the index. The researchers of the Centre for Global Development recently re-created WB rankings using a consistent sample of countries and methodology from 2006 through 2018 in order to reveal skews in WB’s Ease of Doing Business index. CGD researchers stated that significant changes in rankings were the result of the changes in methodology, which were not supported by realities.

“A core element of the recent ‘credibility revolution’ in empirical economics is a push for researchers to pre-commit to a methodology, before they look at their data, so that the results can’t influence their methodological choices. That’s the opposite of how Doing Business works,” they said. CGD’s observations follow recent comments from WB Chief Economist, Paul Rome that WB manipulated its ranking methodology to undermine Chile’s socialist government.

In an interview with Wall Street Journal, Paul Rome said that WB had manipulated its own competitiveness rankings to undermine Chile’s socialist government while hinting Chile may not be the only country to have suffered. He also announced that WB would recalculate the rankings for at least the past four years.

Chile’s Ease of Doing Business Index ranking plummeted when socialist President Michelle Bachelet was in office, rose under her conservative successor Sebastián Piñera and fell again when Bachelet came back in to power in 2010. CGD authors attributed the changes to methodological tinkering which did not back up by any changes in Chile’s actual laws or policies.
Responding to Rome’s comments, WB defended the hard data in the Ease of Doing Business index and stated, “In light of the concerns expressed by World Bank Chief Economist Paul Romer in the media and our commitment to integrity and transparency, we will conduct an external review of Chile’s indicators in the Doing Business report.” However, Rome later withdrew his comments regarding the credibility of WB rankings.

In terms of the methodology, WB stated, “It is important to note that we treat all countries equally in our research, and the Doing Business indicators and methodology are designed with no single country in mind but so that the overall business climate can be improved. Any changes to the Doing Business methodology are done through a rigorous consultative process, where our Board, individual countries, practitioners, academics, and staff across the Bank Group can provide input.”
In South Asia, India jumped to 100th spot in 2018 from 138th in 2017 in WB’s original index released last year. However, under the fixed methodology, India is placed in 147th position.

Due to WB’s methodology changes, the rankings of Burundi, Djibouti, Tajikistan, Iraq, Maldives, Saudi Arabia, Kiribati, Mauritania, Botswana and Sudan were negatively affected while the rankings of Bosnia and Herzegovina, India, El Salvador, Argentina, Panama, Guatemala , Philippines, Czech Republic, Moldova and Hungary made the biggest gains in the original index, the researchers revealed.