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The recent announcement by the National Accounts Committee of the growth rates of GDP for the year 2020/21 of just under 4% with a rather modest downward revision of the contractions of the COVID hit economy during 2019/20 has taken most commentators by surprise, generating a fair amount of animated debate, if not controversy, on the veracity of the estimates.

Using all available official data, we have derived our estimates for both fiscal years and will present these through a series of four articles-Sectoral estimates of growth for 2019/20, followed an estimate of the GDP growth rate for this year using the expenditure approach. Two similar articles will then analyze the data to estimate GDP growth rate in 2020-21This article focuses on the estimation of the GDP growth for 2019/20

The year, 2019-20, has the significance of being the year of the first attack of COVID-19 globally and in Pakistan. Hence, the need to quantify the loss sustained by the economy of Pakistan in terms of the impact on lives and livelihoods of this worst epidemic in the last hundred years.

The World Health Organisation (WHO) has a dashboard on the incidence of COVID-19 in each country. The incidence of COVID-19 cases started in late February 2020 in Pakistan. A peak was attained in the second week of June 2020. Thereafter, it subsided and declined to the lowest level in Mid-October 2020. Since then there have been the second and third attacks. As a result, the last four months of 2019-20 saw a situation where widespread lockdowns and shutdowns were imposed in the country along with restrictions on transport movement. Educational institutions were closed, and many service activities were suspended.

The Pakistan Bureau of Statistics (PBS) undertook a survey of 6000 households throughout Pakistan to elicit responses on how the pandemic influenced their lives during the first COVID-19 period from April to July 2020. The findings of the Survey reveal a huge negative impact as follows:

• 27.31 million workers, out of a working population of 67 million, either lost their jobs or suffered a fall in wages.

• The distribution of the affected population by economic sector was the largest in manufacturing, followed by construction, transport, wholesale and retail trade and community, personal and social services.

• The loss of household income of the affected population was large, on average of 53 percent.

This survey inevitably led to the conclusion that the country’s economy had been rather badly impacted by the first wave of COVID-19. The loss in labour income alone was of Rs 814 billion, equivalent to 2.1 percent of the GDP in 2018-19.

However, in its provisional estimate of the GDP growth rate in 2019-20, which was based on 6 to 9 months data, the PBS had shown a modest stumbling in the level of GDP at constant prices, of only 0.4 percent. The expectation was that in its revised estimate, based on the full 12 months’ data, the impact on the GDP would be fully reflected as the bulk of the adverse impact of COVID-19 was registered in the last four months of the year.

However, it came as a big surprise that the revised estimate released recently by the PBS, the GDP growth rate in 2019-20 has reduced only marginally from negative 0.4 percent to negative 0.5 percent; leaving one wondering how the devastating findings in the COVID-19 impact survey of households seemingly escaped its attention.

The macroeconomic data on a quarterly basis for 2019-20 highlight the big negative impact of COVID-19, as shown in Table 1. The table highlights the difference in the growth rate of key variables in the first three quarters and last quarter of 2019-20, respectively.

===============================================================================================
                                                Table 1
                                Quarterly Growth Rate of Key Variables
                         First three quarters and last quarter of 2019-20                   (%)
===============================================================================================
                                             July 2019 to      April 2020 to       July 2019 to
                                             March 2020        June 2020              June 2020
===============================================================================================
Quantum Index of Manufacturing Production       -5.66                -24.64              -10.16
-----------------------------------------------------------------------------------------------
Cement                                           1.74                -12.67               -2.01
Jeeps and Cars                                 -47.73                -85.40              -54.83
Cotton Cloth                                    -2.81                -34.27              -10.66
Petroleum Products                             -17.45                -28.60              -20.31
-----------------------------------------------------------------------------------------------
Electricity                                                                                    
-----------------------------------------------------------------------------------------------
Power Generation                                 4.35                -10.24               -1.28
Power Consumption                               11.02                -24.80               -0.88
-----------------------------------------------------------------------------------------------
International Trade                                                                            
-----------------------------------------------------------------------------------------------
Exports                                          2.22                -33.02               -6.82
Imports                                        -14.41                30.74               -18.61
FBR Tax Revenues                                13.25                -16.87                4.39
===============================================================================================

The Index of Manufacturing was showing negative growth of almost 6 percent in the first nine months of 2019-20. It plummeted by as much as 25 percent in the fourth quarter. Similarly, there was growth in power consumption by 11 percent in the first three quarters but declined by as much as 25 percent in the last quarter. Also, exports were growing by 2 percent in the first three quarters but, with chaos in global markets due to the pandemic, it is not unexpected that they plunged by 33 percent.

The impact on only the manufacturing value added of the spread of the epidemic can be quantified as follows:

(i) Decline in growth rate of 18.98 percent in the last quarter in relation to the trend observed in the first three quarters,

(ii) Almost 24 percent of the value added in the manufacturing sector in a normal year is the fourth quarter,

(iii) The large-scale manufacturing sector has a share in the GDP of 10 percent.

Therefore, the fall in the manufacturing output in the fourth quarter of 2019-20 alone implies a GDP loss of 0.45 percent.

An attempt has been made to examine the GDP growth rates in 2019-20 by sector and by expenditure respectively to arrive at an estimate of the GDP growth rate in 2019-20, with the use of various indicators. These growth rates are compared with the growth rates of PBS in its revised estimate of the GDP of 2019-20.

The research reveals significant divergence in six sectors as follows:

• Important Crops

• Electricity Generation and Distribution and Gas Distribution

• Construction

• Wholesale and Retail Trade

• Transport, Storage and Communications

• Other Private Services

The indicators used to measure the growth rates in these sectors are given in Chart 1. Diverse indicators are used. Of course, it is difficult to get a precise measure of growth in informal sectors of the economy. This is also the problem with PBS estimates in these sectors, although being the prime statistical agency it has access to more data.

======================================================================================================
                                            Chart 1
                   Indicators used to Measure Growth Rate in Different Sectors
======================================================================================================
     Sectors                                               Indicators
======================================================================================================
1.   Important Crops                            1.     Crop Production
2.   Electricity Generation and Distribution    1.     Electricity Generation
                                                2.     Electricity Sales
3.   Construction                               1.     Sale of Construction Inputs
4.   Wholesale and Retail Trade                 1.     Production and Marketed Surplus in Agriculture
                                                2.     Quantum Index of Manufacturing
                                                3.     Volume of Imports
5.   Transport, Storage and Communications      1.     Consumption of HSD Oil and Motor Spirit
                                                2.     Mobile Phones / Telephones
                                                3.     Post Offices
6.   Other Private Services                     1.     Revenue from Withholding Income Tax on Services
                                                2.     Revenue from Provincial Sales Tax on Services
======================================================================================================

We have opted for some innovative approaches. For example, the growth in the other private services sector is linked to the growth in revenues from taxes on the service sector. In the case of the transport sector, the key indicator used is the change in consumption of HSD oil and motor spirit.

Our review of the data suggests that the following sectors have experienced a sharper fall in growth in terms of value added:

• Major Crops (Wheat, Rice Maize, Cotton and Sugar cane)

• Construction

• Transport and communication

• Electricity and Gas

• Wholesale and Retail

The evidence in support of our assertion is summarized below:

The resulting divergence from PBS sectoral growth rates is presented in Table 2. As highlighted above, there are significant differences between the two estimates in informal sectors like private services and construction.

Also, based on crop output data from recognized international agencies like the USDA the difference is notable in the important crop sector, indicating overstatement by PBS. In particular, the wheat crop was disappointing in 2019-20, necessitating almost 4 million tons of import (3.6 million tons from July 2020 to April 2021) again, the sugarcane output was likely to be significantly lower because the output of sugar fell by 7.2% in 2019/20 and more than 280,000 tons was imported up to April 2021. In other words, overall there was hardly any increase in major crops in 2019/20.

=====================================================================================
                                   Table 2
           PBS and Alternate Estimates of Sectoral Growth Rates, 2019-20
                                     (%)
=====================================================================================
                                                  PBS        Alternate
                                                Estimate      Estimate     Difference
-------------------------------------------------------------------------------------
*     Important Crops                            5.24          0.00             -5.24
*     Electricity Generation and
      Distribution and Gas Distribution         22.40          0.00            -22.40
*     Construction                               5.46         -4.46             -9.92
*     Wholesale and Retail Trade                -3.94         -5.05             -1.11
*     Transport, Storage and Communications     -3.80         -5.83             -2.03
*     Other Private Services                     4.56          1.45             -3.11
=====================================================================================

According to NEPRA, the year 2019-20 saw a decline in generation of over 1 percent. It sounds unlikely that the value added in the sector could have increased, according to PBS, by as much as 22 percent, according to PBS.

Our analysis, Tables 3a and 3b, based on actual sales of cement and iron and steel inputs into construction suggest t negative growth in the construction sector.

===========================================================
                          Table 3a
                  Cement Sales (Tons) (%)
===========================================================
                   2018-19      2019-20     Growth Rate (%)
-----------------------------------------------------------
Output              39,924      39,122
Sales/Exports        6,412       7,103
Domestic Sales      33,512       32,019                -4.5
===========================================================
===========================================================
                         Table 3b
              Steel & Iron Products (Tons) (%)
===========================================================
                     2018-19     2019-20    Growth Rate (%)
-----------------------------------------------------------
Imports                3,287      2,429
Output                 4,383      3,653
                       7,670       6,082              -20.7
===========================================================

Whereas PBS has reported a revised estimate of 5.46% our estimates suggest a minimum decline of minus 4.5%. Therefore, as against the PBS revised rate of 5.46% the likely rate was a negative 4.46%

As for the value added in wholesale and retail trade whose expansion or growth is a derived rate, was lower due to a decline in imports, given that the share of major crops in the wholesale and Retail Sector is approximately 15% (as per PBS).

According to the Oil Companies, Advisory Council (OCAC), there was almost a 6 percent reduction in consumption of HSD oil and motor spirit due to the decline in transport demand (Table 4), compared with PBS’s revised growth rate of negative 3.8%

=================================
                 Table 4
       Fuel Consumption (000Tons)
=================================
            2018-19       2019-20
---------------------------------
HSD          7,599          7.454
MS           7,359          6,633
Total       14,958         14,087
=================================

As mentioned above a decent indicator of the level of estimates for private services is the tax revenues from Services. Table 5 shows a growth rate of 9.7% in nominal terms.

========================================================================================
                                         Table 5
                                Tax Revenues (Rs. billion)
========================================================================================
Year          Withholding tax on Services       Provincial Tax on Services        Total 
----------------------------------------------------------------------------------------
2019/20              83.7                                232.9                     316.6
2018/19              85.8                                202.8                     288.6
========================================================================================

With the inflation rate for services in 2019/20 of 8.25% the real growth in services was 1.45%

Our analysis, therefore, indicates that there was an additional fall in the growth rate by minus 1.6%, resulting in the overall decline in the GDP growth rate by minus 2.1%, as compared to minus 0.5 percent by the PBS. The former confirms the sizeable impact of COVID-19 on the economy of Pakistan.

According to the estimate of NAC the impact on the economy was approximately Rs.200 billion, our estimates indicate an adverse effect of more than RS.850 billion.

As we have shown above, the economy was growing slowly in 2019-20 even prior to COVID-19 at about 2 percent. For example, the large-scale manufacturing sector was already contracting. Therefore, the total GDP loss is 4.1 percent, equivalent to Rs 1,470 billion, due to COVID-19. The price paid on average by each family of Pakistan was over Rs 42,000.

A comparison is made of the official estimates of the impact on the GDP growth rate in South Asian countries in Table66 below.

==============================================================
                              Table 6
Impact of COVID-19 on GDP Growth Rate in South Asian Countries
                                                           (%)
==============================================================
Cases per                2019             2020          Impact
--------------------------------------------------------------
India                    4.0              -8.0           -12.0
Nepal                    6.6              -1.9            -8.8
Sri Lanka                2.2              -3.6            -5.8
Bangladesh               8.2               3.8            -4.4
Pakistan                 2.1              -0.5            -2.6
                                         (PBS)
==============================================================

Apparently, Pakistan experienced the lowest decline in the GDP growth rate, despite having the highest number of COVID-19 cases per 100,000 population as of June 30, 2020 in South Asian countries after the first attack.

This also raises doubts about PBS’s estimate of the extent of decline in the GDP growth rate in 2019-20. Of course, now India has by far the largest incidence of cases.

As already mentioned earlier our next contribution will focus on the estimate of the GDP growth rate for 2019/20 via the expenditure approach.

(The writers are former Federal Minister and former Governor of the State Bank of Pakistan, respectively. This article is the first of a

four-part series of articles)

Copyright Business Recorder, 2021

Dr Hafiz A Pasha

The writer is Professor Emeritus at BNU and former Federal Minister

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