With advertisements showing PML-N's economic performance at the completion of its 5-year term, critics are having a field day. While some rely on their anecdotal insights to question the performance of the government just out of office, others use the government's own datasets sprinkled with box standard economic theory to question the credibility of the claims.
In the latter context, Dr. Hafeez Pasha is not a name that needs any introduction; nor does his line of attack. In an Aaj TV show this weekend, Pasha claimed that GDP growth for FY18 is going to be much lower than what the government has estimated. His estimates put the number at 4.9 percent as against the official estimates of 5.8 percent.
He claimed that agriculture growth rate of 3.5 percent is not credible, and that farming growth could not have been more than 2 to 2.5 percent. This, he argued, is mainly rooted in the fact that farming area did not increase in FY18, whereas fertilizer consumption decreased amid water shortage in Rabi season and overestimation of sugarcane output. A similar analysis was put forward for government's claim of LSM growth, where he questioned the number based on weak drivers of industrial growth - such as electricity - and troubled economic environment in general.
Dr. Pasha also spoke of the quasi fiscal deficit including the unpaid circular debt, guarantees, and commodity financing - matters that would have become a part of fiscal deficit had Pakistan followed accrual system in its government accounts rather than the existing cash accounts. He also hypothesized that due to development spending, provinces may not generate any budget surplus at all and thereby increase this year's fiscal deficit beyond current estimates. He also cautioned of the soaring current account deficit in FY18, which as earlier discussed in this space, is highest in recent memory. (See BR Research's 'A case of twin deficits' published May 23, 2018).
Central to all this criticism is weak government institutions and poor calculation methodologies. The measurement of GDP in various sectors is mostly an exercise in patchwork estimations and is based on data taken by a host of federal and provincial level organizations that lack capacity and relying on out-of-date methodologies.
For instance, the current LSM index, which is based on 2005-2006 CMI, understates the size of Pakistan's manufacturing GDP. Globally, the LSM comprises of 22 broad categories of industries. However, in Pakistan it captures 15 sectors. (See 'GDP at risk of being understated', April 11, 2018).
Yet, as noted earlier in this space (The data mismatch,May 9, 2018) most discussions by experts on media revolve around overstating growth, and hardly anyone discusses the possibility of structural understatement of economy.
As Pakistan makes another transition from one civilian government to another, let us focus on fudged economic numbers wherever they exist. But let us also at least equally focus on the strengthening of economic institutions, where BR Research's proposed Charter of Economy can serve as a useful guide for government-hopefuls if indeed they want to reform.
The Fourteen Points of Charter of Economy, (published May30, 2017) talk about accrual-based government accounting, improving documentation and economic surveys and estimations such as the GDP, transparency, PSE reforms and so forth. An effective implementation of those fourteen points can help Pakistan get rid of its annual round of criticism over numbers and debate instead on policy issues.
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