The GDP by expenditure

The National Income Committee of the Pakistan Bureau of Statistics has released the GDP estimates for 2025-26, both respectively by sector and by expenditure. The net factor income from abroad has been included to arrive at the estimate of Gross National Income (GNI).

The focus generally in most research and writings is on the trends in the GDP by sector. There has been less emphasis on the trends in the various components of GDP by expenditure. These include household consumption expenditure, government consumption expenditure, gross fixed capital formation, change in inventories, exports and imports. They add up to the GDP by sector plus taxes minus subsidies.

The methodology used for estimating the different components of expenditure is based on the accounting identity that the largest expenditure is a residual. It is the GDP by sector minus the sum of the different components of GDP by expenditure, all of which are directly estimated, as described below.

The government consumption expenditure is derived generally from the relevant budgeted expenditures reported in the Annual Budget Statements of the federal and provincial governments.

Capital formation represents investments in physical assets such as buildings, machinery and infrastructure. Data is assembled through annual surveys, government budgets and company reports.

The PBS methodology of measuring various statistics has been questioned by the IMF. A number of shortcomings and discrepancies have been identified. Emphasis has been placed on modernization of Pakistan’s official economic statistics, including especially the National Income Accounts.

Based on this concern, an attempt is made to assess the magnitude and growth of different components of the GDP by expenditure as estimated by the PBS. The evidence related to different magnitudes is examined.

Initially, the growth rates of different expenditures are highlighted which are directly estimated. This leads eventually to the estimation of the large residual, which is household consumption expenditure.

The growth rate of real government consumption expenditure in 2025-26 is reported by PBS at a relatively high 7 percent. Between 2020-21 and 2024-25, the reported growth rate was negative at 0.6 percent.

However, examination of the relevant current expenditures in the budget documents of the federal and provincial governments reveals that in nominal terms the combined expenditure has increased in 2025-26 by as much as 15.1 percent. The big jumps in spending are observed in defence expenditure at 18.5 percent and in running of civil government at the federal level by over 67 percent. Adjustment for the inflation rate in 2025-26 of 7.1 percent implies that the rise in real terms is 8 percent. This is, in fact, 1 percent higher than the PBS estimate.

Gross fixed capital formation is shown as having risen in real terms by as much as 7.4 percent. Two indicators are used here to determine the growth. The first is a proxy measure largely for private investment in the increase in the value of imported machinery. This has increased in rupee terms by 6.5 percent. Adjusting for the rate of inflation, implies that the growth rate is a negative.

The indicator of government investment is the level of development spending by the federal and provincial governments. This has shown a decline in nominal terms of 1 percent, and thereby in real terms of over 8 percent.

The two proxy indicators indicate that the growth rate of gross fixed capital formation at 7.4 percent is overstated and there is likely to have been hardly any increase in this expenditure.

Turning to exports, the reported growth rate by PBS is of 7.1 percent. This is related to the statistics in the balance of payments by the SBP. Accordingly, in nominal terms, exports of goods and services combined have shown near zero growth. Therefore, there is a likelihood here also that the reported growth rate is highly overstated.

The PBS numbers reveal that real imports of goods and services have declined by as much as 7.7 percent. The statistics of the balance of payments reveals a contrary trend. Imports have increased by as much as 7.8 percent, and in real terms by close to 0.7 percent.

The above paragraphs reveal a significant divergence between growth estimates of different expenditures in the GDP by expenditure in 2025-26, as compared to relevant proxy indicators.

The residual of household consumption expenditure according to the PBS emerges with a growth rate of near zero. This is indeed surprising. The Gross National Income has gone up in real terms by 3.4 percent in 2025-26, implying thereby a rise in real per capita income of 1.3 percent. Therefore, it is unlikely that with this significant increase in income, there is no increase in household consumption expenditure.

There has been only one year when household consumption expenditure has declined between 2015-16 and 2025-26. This is 2019-20, due to COVID-19. The average growth rate of household consumption expenditure in the last four years, from 2020-21 to 2024-25 has been 3.7 percent, with a real GNI growth rate of 2.4 percent. Clearly, the likelihood is much higher of a significantly positive growth rate in household consumption expenditure in 2025-26, with a GNI growth rate of 3.4 percent.

The bottom line is that the direct estimates of different expenditure have been somewhat on the high side, leading thereby to no growth in the residual, household consumption expenditure.

The PBS summary of the growth trends in different expenditures is a constant level of household consumption expenditure, high growth rate in government consumption expenditure, big increase in gross fixed capital formation and in exports while imports are shown to have declined significantly.

The alternative estimates reveal the same trend in one expenditure only; namely, the government consumption expenditure. Other trends tend to be different. Household consumption expenditure is likely to have shown significant growth of at least 2 percent, while there is a small increase in capital formation and in exports. The decline in imports may be significantly smaller.

Therefore, there appears to be significant differences in the growth projections of different expenditures in the GDP. However, the estimate of GDP growth rate from the sectoral output side of 4 percent is considered appropriate.

The above differences tend to substantiate IMF’s concerns about the quality of PBS estimates. There will be need to learn more from the latest international National Income Accounts methodology and remove the shortcomings.

Copyright Business Recorder, 2026