The budgeted Gross Domestic Product (GDP) growth rate was an unrealistic 5 percent (10 June 2022), downgraded to 3 percent subsequent to the devastating floods and in recent reports the World Bank downgraded it to 0.4 percent and the Asian Development Bank (ADB) to 0.6 percent.
The International Monetary Fund’s (IMF’s) website gives 2 percent as GDP’s growth for the year and adds that the source of the data is January 2023 World Economic Outlook – clearly a dated projection which would be update as and when the ninth review is successful.
The discrepancies in the growth estimates are likely due to the different time periods that each multilateral lending agency took into consideration to project the rate for the current year.
However, the source of GDP data for all three agencies is the government and the necessity for this reliance is attributable to the fact that collection and compilation of this massive amount of data requires a large manpower that the government alone possesses.
The question is how accurate is our GDP data compilation? On 17 May 2022 Javed Hassan, a member of the Economic Advisory Group during the Khan administration, tweeted the following: Breaking: “As a result of attempts to manipulate GDP growth and my refusal, I was asked to tender my resignation last Friday. Today I have tendered my resignation,” Dr Zubair Khan, Chief Economist. This was retweeted by former finance minister Shaukat Tarin with the comment that “my hunch was correct, Dr Zubair has resigned.” There is no confirmation of this claim on the social media by the former Chief Economist.
It is however relevant to note that the vote of no-confidence against the then Prime Minister Imran Khan was passed by parliament on 9 April and any pressure on the Chief Economist to resign would have been to understate the 6 percent GDP growth for the year 2021-22.
This appears to be an absurdity as a better option would have been to present an economic rationale for the 6 percent growth last year notably that the previous year’s low base as well as higher consumption of cars and construction industry (granted an exclusive amnesty after the pandemic related lower economic activity was lifted) were factors that contributed to the growth rate – factors that would no longer be relevant in the current year.
Be that as it may, the incumbent Finance Minister Ishaq Dar has a history of engaging in blatant as opposed to subtle data manipulation – a manipulation that is not only limited to inflation and unemployment, the twin indicators that can change political fortunes, but also GDP growth rate. Dar, without any finesse, defined as an adjustment of the components, understated GDP growth rate in 2013-14 of two years ago - 2011-12 - so that he could claim the highest growth since the fall of Musharraf.
An example of a subtle and therefore defendable manipulation is the changing of the component weights in the calculation of Consumer Price Index (notably food by six points) by Dr Hafeez Sheikh in his tenure under the Zardari-led government which enabled him to halve the CPI within a month.
History shows that PML-N proactively and possessively seeks the finance portfolio whenever it opts to become a part of a coalition government – irrespective of whether it is in a minority (2008) or a majority (April 10 2022 onwards). This has been patently evident since Ishaq Dar became the party’s only candidate for the portfolio other than at times when the party was in power and he decided to reside abroad as the likelihood of incarceration loomed large on his horizon (though he never gave up his senate seat).
Few, if any independent economists, are convinced that Dar has delivered in the past or that he can deliver in the present. This has been strengthened in recent months by the fact that he implemented the same economically untenably disastrous policies as in 2013-17 after he took oath as the finance minister late September 2022.
In the words of the recent World Bank report: “distortive policy measures, including periods of informal exchange rate restrictions and import controls, delayed the IMF-EFF program, and contributed to creditworthiness downgrades, lower confidence, high yields and interest payments, and the loss of access to international capital markets.”
Atif Mian, a world renowned economist of Pakistani descent, better echoed the sentiments of not only domestic independent economists but also of the general public in a recent tweet: “what the PDM government has done is on another level. It removed the central bank’s governor with no plan in mind, started in-fighting against its own FM, and ultimately replaced him with a close relative of the PM – competence be damned.”
In addition, a baffling statement was issued by the Finance Ministry this Thursday past, with reference to a meeting between Dar and US Ambassador Donald Blome wherein Dar shared “pragmatic policy decisions” taken to “arrest the country’s economic decline and steer the economy towards a positive trajectory, leading to economic stability and growth.”
Data uploaded on government websites, the recent World Bank and ADB reports and the reported logjam on the ninth review with the IMF, no doubt routinely accessed by the Ambassador’s team, tells a markedly different picture.
Given the differing time periods used to project GDP by the dedicated Economic Departments in donor agencies and the propensity of some countries to manipulate data one would urge development finance institutions (DFI) to desist from duplicating efforts at a cost to their member countries and allow one DFI to compile and project economic data as part of their pledge to harmonize donor practices for effective aid delivery.
The Rome Declaration on Harmonization, 25 February 2003, states: “We, the heads of multilateral and bilateral development institutions and representatives of the IMF, other multilateral financial institutions, and partner countries (no South Asian country including Pakistan was included) gathered in Rome, Italy, on February 24-25, 2003, reaffirm our commitment to eradicating poverty, achieving sustained economic growth, and promoting sustainable development as we advance to an inclusive and equitable global economic system.”
One can easily challenge the success of the stated objectives of each DFI: IMF considers itself as the lender of the last resort though linking a staff level agreement to guarantees of pledged assistance from Pakistan’s international partners indirectly violates this claim: World Bank as the lead player in Pakistan’s energy sector has also patently failed as the country sports a circular debt of over 2.5 trillion rupees today. And the less said the better about ADB’s claim in the country partnership strategy 2021-25 that the three priorities for Pakistan are lifting growth, building resilience and increasing competitiveness.
Be that as it may, one would urge the DFIs to co-relate economic data through their resident missions in the member country, harmonize it, and come up with one projection for a specific time period to share with their headquarters as well as with the member country.
This would ensure devolution within DFIs that are a standard loan conditionality and reduce headquarter costs which could then be shared with the borrowing countries.
Copyright Business Recorder, 2023
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