The PBS has released the revised estimate of the GDP growth rate for 2020-21. It has increased to 5.57 percent from the preliminary estimate of 3.94 percent. Clearly, the process of economic recovery after the Covid-19 attack appears to have been stronger.
There are two reasons for the rise in the GDP growth rate. First, the preliminary estimate was based on data for the first nine months of 2020-21. The last quarter of 2019-20 had witnessed a plummeting of economic activity in the immediate aftermath of the pandemic. Therefore, incorporation of the last quarter in the growth rate estimate for 2020-21 was bound to raise it significantly due to the low base effect.
Second, the rebasing exercise from 2005-06 to 2015-16 has led to significant changes in the economic structure for 2020-21. Shares of different sectors in the national GDP have changed. Consequently, this has also changed the GDP growth rate, based on 2015-16 prices compared to that with 2005-06 prices.
There is need to identify the sectors which have contributed to the rise in the GDP growth rate from 3.94 percent to 5.57 percent and to determine the reasons for their improvement in performance. The higher growth sectors are shown in Table 1.
=============================================================================================== Table 1 =============================================================================================== Higher Growth Sectors in the Revised Estimates for GDP growth rate in 2020-21 as compared to the Preliminary Estimates =============================================================================================== (%) =============================================================================================== Preliminary Revised Increase Contribution to Estimate Estimate Higher GDP Growth Rate =============================================================================================== Major Crops 4.7 5.8 1.1 4.8 Other Crops 1.4 8.0 6.4 12.5 Mining and Quarrying -6.5 0.6 7.1 8.7 Large-Scale Manufacturing 9.3 11.5 2.3 11.4 Electricity and Gas -23.0 3.5 26.5 38.6 Wholesale and Retail Trade 8.4 10.6 2.2 23.5 Transport and Communications -0.6 4.9 5.5 35.6 ===============================================================================================
The agricultural sector has a higher growth rate partly because of the change in weights of different crops in the major crop sector. With the change in the base year from 2005-06 to 2015-16 the weight of cotton has fallen from 25.6 percent to 21.2 percent. Therefore, the plummeting of the cotton output in 2020-21 has had less impact on the growth rate of the major crop sector.
The rebasing has created the opposite effect on the large-scale manufacturing sector. Based on the 2005-06 weights of individual industries in the Quantum Index of Manufacturing (QIM) the growth rate has been reported as 14 percent in 2020-21. But with the 2015-16 weights it is lower at 11.5 percent.
The mining and quarrying sector was initially reported as having suffered a decline in output of 6.5 percent, due largely to a decline in the volume of natural gas extraction. This has now been changed to a positive 0.6 percent.
Perhaps surprisingly, the sector, construction, which was experiencing a boom in 2020-21 due to incentives and larger access to credit, has been shown as having a modest growth rate of 5.3 percent. The preliminary estimate had shown a higher growth of 8.3 percent.
Three sectors, viz., electricity and gas, wholesale and retail trade and transport and communications have contributed the most to the rise in the GDP growth rate in 2020-21 of 38.6, 23.5 and 35.6 percent, respectively. It is essential to examine the reasons and the validity of the higher revised growth rates for these three sectors.
First, there is the big jump of 26.5 percent in the growth rate of the electricity generation and distribution and gas distribution sector. The preliminary estimate was a big negative growth rate of 23 percent in 2020-21.
The question is how did PBS arrive at this preliminary growth rate when the quantum of electricity generated, electricity sales and gas consumption had shown some increases? It is likely that in the value-added estimate the impact of the big rise in circular debt had been included. The higher losses and lack of payments to IPPs (Independent Power Producers) may be the reason for the large negative growth in value-added by the sector. This ought to have been also reflected in the revised estimate, which is not the case.
The other sector where the preliminary estimate of growth rate was also negative but was revised to a significant positive growth rate is transport, storage and communications. Here again, the PBS (Pakistan Bureau of Statistics) may have initially included the operating losses of Pakistan Railway and the PIA (Pakistan International Airlines) in the value-added estimates.
The small increase of 2.2 percentage points in the growth rate of the wholesale and retail trade sector is in line with the higher marketed quantities of the crop sector and large-scale manufacturing.
The primary conclusion is that the PBS will have to clarify how two sectors, viz., electricity generation and distribution and gas distribution, and transport, storage, and communications, have seen a move from big negative to positive growth rates in the transition from preliminary to revised estimates.
Given the lack of clarity currently on the performance of these two sectors, there are doubts as to whether a GDP growth rate of 5.57 percent was achieved in 2020-2. If the higher growth rate in these two sectors is not allowed for then the GDP growth rate in 2020-21 is recorded at 4.56 percent. Therefore, it is likely that the revised estimate of the GDP growth rate is in the range of 4.5 to 5 percent. This is still evidence of significant recovery in the growth process in the economy.
(The writer is Professor Emeritus at BNU and former Federal Minister)
Copyright Business Recorder, 2022