GDP growth revisions: numbers in flux, substance in doubt

The National Accounts Committee (NAC) has revised the GDP growth for FY25 upward to 3.04 percent from an earlier estimate of 2.68 percent. Interestingly, almost all independent economists and research houses, including BR Research, doubted the initial 2.68 percent figure, and now it has been revised even higher. The upward revision spans all quarters of the fiscal year and seems aimed at reaching the “magic” 3 percent mark.

Historically, according to PBS (Pakistan Bureau of Statistics) sources, both the PMLN government and, previously, the Musharraf government have been known for tweaking numbers to achieve desired growth targets. For example, in 2003–04, the then economic advisor pressured PBS to increase GDP growth by 2 percentage points to attract foreign funding and investment, and PBS complied.

Later, the PMLN government forced PBS to report FY13 growth (PPP’s last year) below 4 percent, despite higher actual estimates. In FY16, the finance minister reportedly did not allow the PBS team to leave the Q-Block (Finance Division office) until they produced 4 percent growth figures.

Similarly, during the PDM era (FY22), PMLN officials allegedly pressured PBS to report FY22 growth (PTI’s last year) lower than FY18 (PMLN’s highest growth year). PBS showed compliance, though it quietly revised the numbers upward later during the caretaker government.

Now it appears history is repeating itself. Even if 3 percent growth is achieved, its quality is unimpressive. Of the 3 percent growth, 0.7 percent (23 percent) comes solely from electricity, a sector rife with inefficiencies and poor governance. Electricity growth surged by over 128 percent in the last quarter. PBS estimates gross value added (GVA) by calculating output (units multiplied by tariff) minus input costs, taxes, plus subsidies.

Subsidies play a key role, rising to Rs1,190 billion in FY25 from Rs584 billion in FY24. Thus, subsidies rather than increased grid consumption or lower production costs are driving growth. These subsidies increased because the IMF disallows expanding circular debt, forcing the government to budget for the shortfall. Essentially, taxpayers are covering losses caused by power theft, lopsided legacy IPP contracts, and other governance failures, enabling this abnormal growth.

A similar spike occurred in FY13 when the newly formed PMLN government cleared about Rs500 billion of circular debt in June 2012 to have higher fiscal deficit impacts during PPP’s final tenure. However, the PMLN finance team then suppressed growth benefits from higher electricity subsidies to keep PPP’s last-year growth under 4 percent, using accounting gimmicks to hide the subsidy impact.

Another 0.15 percent (5 percent of FY25 growth) stems from construction growth at 6.63 percent, with the last quarter surging 17.65 percent. This aligns with the PMLN government’s push to raise PSDP allocations to Rs1 trillion in FY25, heavily disbursed in the final quarter. However, construction growth appears overstated compared to cement dispatch growth, which was just 2.1 percent for FY25 and 6.2 percent in 4QFY25.

The third contributor is general government spending, which is current spending net of interest expenses. It is up by 9.88 percent, contributing another 0.4 percent (14 percent) to overall growth. Curiously, health and education, which comprise 70 percent of general government spending, show only 3 to 4 percent growth. Given the historic fiscal austerity and the highest-in-two-decades primary fiscal surplus, it is puzzling how general government spending can grow so strongly. The numbers do not add up.

With these doubts about the growth figures, over 40 percent of the increase comes from government spending or subsidies. Beyond government-induced growth, the only better performer is minor crops, where numbers have been significantly revised upward based on provincial estimates—though these are often prone to manipulation, as is the case with small-scale manufacturing and slaughtering. Green fodder shows healthy double-digit growth, while livestock growth is below 3 percent and has been revised from earlier estimates.

There are many ifs and buts surrounding the growth numbers, with the private sector’s contribution remaining thin, which is concerning. The fourth quarter growth is approaching 6 percent, yet this is not reflected in economic vibrancy, as employment remains low and retail and wholesale sectors show sluggish growth.

With nearly half of the growth fueled by government spending and subsidies rather than vibrant private sector activity, the reported numbers reflect more smoke and mirrors than genuine economic dynamism. Without structural reforms and true private sector revival, this growth is unlikely to translate into sustained prosperity.

Copyright Business Recorder, 2025