The Governing Council of the Pakistan Bureau of Statistics has approved the new GDP estimates, following the exercise of rebasing from 2005-06 to 2015-16, somewhat belatedly. The editorial of the 18th of March of the Business Recorder has also welcomed the rebasing, with all its limitations.
The consequence of the rebasing is that the size of the GDP at market prices shows a sizeable increase in 2015-16 of Rs3650 billion equivalent to 12.6 percent above the estimate with 2005-06 as the base year. By 2020-21, the divergence has increased to16.3 percent.
Which are the sectors and expenditures which have shown the biggest increases in percentage terms in 2015-16 following the rebasing? The services sectors combined have seen the biggest jump in size of 12.5 percent, followed by 11.9 percent in the industrial sector and 8.2 percent in agriculture. Therefore, the economy appears to be more diversified now than was thought originally to be the case.
However, almost 77 percent of the economic activity in services is in the informal sector. This includes wholesale and retail trade, accommodation and food services, road transport, real estate activities and other private services. The sizing of these informal sectors can only be done by undertaking a census of establishments and household production units. This was done prior to the rebasing in 2015-16. However, this is not the case with the rebasing in 2015-16. Consequently, the estimated magnitudes are likely to be subject to big margins of error.
At the individual sectoral level, there are some big surprises. The size of the livestock sector is up by almost 18 percent. There was no livestock census prior to the rebasing to justify such a large increase. In fact, the estimated consumption expenditure on livestock products in Pakistan, as reported in the Household Integrated Economic Survey (HIES) carried out by the PBS in 2015-16, is only 42 percent of the size of the sector after rebasing.
A massive increase of over 75 percent has been shown in the size of the electricity generation and distribution and gas distribution sector in 2015-16, following the rebasing. However, the quantification of the value added has to reflect the large losses in distribution and billing, which have contributed to the explosion in circular debt. The likelihood is that incorporation of these losses will lead to a fall in value added, rather than a big increase in recent years.
The rebasing has also led to a big jump in the construction sector value added of 53 percent. Previous research has revealed the magnitude of the output-input ratio with respect to major construction input, cement. Application of this ratio on the sales of cement in 2015-16, reveals that the size of the construction sector has been overstated by over 32 percent.
This is also a major problem with the estimated GDP from the rebasing exercise between 2015-16 and 2020-21. A break-up has not been given of the macroeconomic expenditures in 2020-21. The fundamental question is how the overall GDP at market prices at Rs55488 billion has been estimated?
Given the plausible or observed values of the trade deficit in goods and services, gross capital formation and change in stocks, the implied level of total consumption expenditure is close to Rs 51700 billion. This means that the share of consumption expenditure in the GDP was as high as 93.3 percent in 2020-21, as derived on a residual basis. This is significantly higher than the average of 88.9 percent from 2015-16 to 2019-20.
As such, without the break-up of the GDP at current market prices into the individual expenditure components the estimate of Rs55488 billion in 2020-21 cannot be accepted. This also means that the GDP growth rate of close to 5.6 percent has been overstated.
There are other examples of likely overstatement of growth rates at the sectoral level. First, the livestock sector is shown as having an average annual growth rate of 3.3 percent between 2015-16 and 2018-19. But according to the Household Integrated Economic Survey (HIES) by the PBS of these years, the per capita consumption of most livestock products has declined or remained unchanged. As such, the growth rate of over 3 percent annually is unlikely.
Second, the small-scale manufacturing sector is shown as being very buoyant between 2015-16 and 2018-19, with an annual growth rate in value added at 2015-16 prices of as high as 8.5 percent. But the Labor Force Surveys of the PBS present a very different picture. Employment in the sector has actually fallen between 2014-15 and 2018-19. Clearly, an annual increase in labor productivity of almost 9 percent is well beyond the realm of possibilities. Third, for the same reasons an annual real growth rate of 5.6 percent in the slaughtering sub-sector is extremely unlikely.
The fundamental problem is that the PBS does not use the surveys, like the Household Integrated Economic Survey, Labor Force Survey and Social and Living Standards Measurement Survey, undertaken periodically as collateral evidence to monitor trends in different sectors of the economy. The last Living Standards Survey reveals little improvement in life expectancy and mortality rates between 2015-16 and 2019-20. Yet real expenditures on health are shown in the rebased GDP estimates as having increased annually by over 7.5 percent. Alternatively, this may be due to a big loss in the efficiency of public expenditures.
The big area of concern is that with the higher GDP estimates following the rebasing, many performance indicators, measured as percentage of the GDP, show a deterioration. A comparison is made of the newly computed ratio for Pakistan with that of other South Asian countries in the
================================================================================= Table 1 ================================================================================= Key Ratios of South Asian Countries (2019) ================================================================================= (% of GDP) ================================================================================= Gross Fixed Revenues Exports of Capital (Taxes plus non- Goods and Formation tax sources) Services ================================================================================= Bangladesh 31.6 10.0 15.3 India 30.7 19.6 18.4 Nepal 41.4 22.3 7.8 Pakistan 15.6 11.1 10.1 Sri Lanka 26.8 12.6 23.1 ================================================================================= Source: World Bank
The numbers in Table 1 demonstrate that Pakistan does poorly in comparison to most other South Asian countries. The gap in performance has increased following the rebasing.
Finally, there is some good news. The big increase in Pakistan’s GDP has implied that the per capita income of the country has once again exceeded that of Bangladesh. The GNI per capita in 2019 in current PPP US dollars was $5390 of Bangladesh. It is now estimated at $5425 in the case of Pakistan. Thanks are due to the PBS.
The public debt and external debt ratios of Pakistan in 2020-21 are also significantly lower, as shown in Table 2, with the larger GDP.
================================================================ Table 2 ================================================================ Debt Ratios of Pakistan, June 2021 ================================================================ (% of GDP) ================================================================ With old With new Base Year Base Year Public Debt 83.5 71.8 External Debt 40.3 34.6 ================================================================ Source: SBP
Overall, given the above- mentioned limitations of the rebasing exercise it remains to be seen if the new GDP estimates will be accepted by agencies like the UN, World Bank, and the IMF. It is essential that the next rebasing exercise be preceded by a nationwide census of establishments and household production units to provide adequate benchmark data for rebasing.
(The writer is Professor Emeritus at BNU and former Federal Minister)
Copyright Business Recorder, 2022