PES: surprises and inconsistencies

There are some very surprising and sometimes even conflicting estimates and gaps in the recently- released Pakistan Economic Survey (PES) of 2020-21 by the Ministry of Finance. Many of these findings make it more difficult to interpret and identify the ongoing trends in the national economy.

This article covers nine such cases in the areas of growth, inflation, public finances, and employment. Five relate to economic growth in 2020-21, one to inflation, two to public finances and one to employment.

The first inconsistency relates to growth in the major crop sub- sector in agriculture. Table 1.1 in the Statistical Appendix indicates that it was a healthy 4.7 percent in 2020-21. The growth rate in output of individual crops is revealed in Table 2.4. Extremely high growth rate is observed in four out of the five crops of 8 percent in wheat, 14 percent in rice, 22 percent in sugarcane and 7 percent in maize, respectively. The only exception is cotton with a big fall in production of 23 percent.

However, this exceptional growth in most major crops is not matched by a corresponding increase in the access to or use of agricultural inputs in 2020-21, as shown in Table 2.1B. The total cropped area has remained unchanged since 2017-18, total water availability has improved by only 1 percent, fertilizer offtake is down by as much as 14 percent and credit disbursement has fallen by 21 percent. Growth is shown only in production of tractors of 13 percent and in improved seed distribution of 54 percent.

Therefore, the extremely high growth rate in output of four major crops, with a share in the sub-sectoral value-added of over 80 percent, must be seen as 'manna from heavens'. Interestingly, fish production is also shown in Table 2.1B as having fallen by over 14 percent. However, Table 1.1 shows that value- added in the fishing sector has increased by almost 1 percent in 2019-20.

The second problem arises with the negative growth rate shown in Table 1.1 of the value-added in the transport, storage, and communications sector of almost 1 percent. However, this is in sharp contrast to the growth rate shown in Table 14.1 of consumption in the transport sector of petroleum products of almost 24 percent in the first nine months of 2020-21. However, according to Table 13.4, the number of trucks and buses on road in 2020-21 has decreased by 15 percent and 4 percent, respectively. Therefore, there are conflicting estimates about growth in inputs into the transport sector. This sector ought to have revived after the first attack of Covid-19.

The other mystery relates to the large negative growth shown in Table 1.1 of the electricity generation and distribution and gas distribution sector of as much as 23 percent in 2020-21. In contrast, Table 14.2 shows that electricity generation has increased by 5 percent, while according to Table 14.1, electricity consumption has risen by over 5 percent in the first nine months of 2020-21. Similarly, the Table shows that gas consumption has soared to almost 12 percent. How then can the value added by the sector at constant factor cost show such a big decline?

There is now full confirmation of the 'low base effect' of economic contraction in the last quarter of 2019-20 following the first Covid-19 attack. The Quantum Index of Manufacturing has increased by a massive 68 percent in April 2021, as compared to April 2020. It will not be surprising if the GDP growth rate in 2020-21 rises to above 4 percent in the revised estimate due to this low base effect.

Turning to the rate of inflation, the Finance Minister, in his press conference on the launch of the Survey, highlighted that a large part of the food prices inflation in the country is due to 'imported' inflation. He cited the examples of rise in prices of various imported items of food at over 50 percent in 2020-21. But this is in sharp contrast to the rise in unit value index of imported food items of only 3 percent, as reported in Table 8.4. Therefore, at least, the PBS does not believe that higher import prices are the cause of faster inflation in domestic food prices.

There is one some subtle change in the classification of revenues in Tables 4.1 and 4.3, respectively. The petroleum levy was shown as a tax in the revenue classification of 2019-20. However, it has now been transferred to the non-tax category. Why? May be the motivation is to show a smaller and less rapidly growing share of indirect taxes in federal tax revenues.

The chapter on social protection in the PES reveals one extremely worrying development. On the one hand there is the good news in Table 15.2 in the Chapter that total pro-poor expenditures have risen in 2019-20 by over 11 percent, especially after the first Covid-19 attack, but on the other hand, there is the fall apparently of almost 30 percent in public expenditure on education. This is equivalent to a reduction in spending of Rs 257 billion. How could this have happened? Have many schools closed down or a large number of teachers have not been paid their salaries in 2019-20? Fortunately, these are provisional estimates for 2019-20 and the PRSP Secretariat of the Ministry of Finance should again check its expenditure estimates.

A big source of concern is another statement by the Finance Minister in the press conference that out of the 55.7 million working population prior to the first Covid-19 attack, almost 21 million lost their jobs or suffered a fall in wages in the immediate aftermath of the pandemic. Fortunately, he stated that by the end of 2020 over 17 million workers had recovered their employment or income.

There are some serious problems with these numbers. According to the Labour Force Survey of the PBS in 2017-18, the working population was 61.7 million. If this number was 55.7 million just prior to the Covid-19 attack in 2019-20, then apparently 6 million workers had lost their jobs in the intervening period, even prior to Covid-19. This is an indictment of the economic performance of the PTI-government. The unemployment rate was 5.8 percent in 2017-18, as shown in Table 12.9. According to the number of employed reported by the Finance Minister, the unemployment rate had already risen to over 19 percent prior to Covid-19 and now stands at almost 25 percent. These numbers, if valid, highlight the very adverse employment situation in the country.

Overall, the above inconsistencies and adverse indicators need to be reviewed carefully by the Economic Adviser's Wing of the Ministry of Finance. Suitable clarifications may then be issued in the media.

(The writer is Professor Emeritus at BNU and former Federal Minister)

Copyright Business Recorder, 2021