The realities of growth
The rebasing of the National Income Accounts provided the government with a great and sudden opportunity for new economic growth figures.
The new economic growth figures gave the government confidence to brag about its economic successes. The government has come under pressure due to depressing economic conditions in – with high inflation, a widening trade gap, a difficult current account deficit, debt management issues and difficult IMF conditions for the resumption of the Extended Financing Facility (EFF). The new numbers have given some respite.
The rebased national income accounts have made the government optimistic that the economy is probably moving in the right direction. But the fact is that nothing has changed on the ground. It is essentially a welfare factor having a predominant effect over all other factors. The rebasing exercise increasing GDP growth numbers does not make countries or people rich. And inflation cannot be stopped by a rebasing nor employment generated by fancy new numbers. Even then, however, the revision and rebasing of the accounts certainly helps policymakers make informed decisions about public investment and the tax system based on GDP growth. And there is no harm in revising prices, replacing the old base year with a recent base year in line with international best practice.
The rebasing of Pakistan’s national accounts from 2005-6 to 2015-16 duly endorsed by the World Bank, IMF and AfDB enabled the government to raise the GDP growth figures. In fact, the UN had developed the System of National Accounts, standardizing national income accounting across the world. The IMF, AfDB and EU have also endorsed the system. The National Income Accounts are a comprehensive, consistent and flexible set of macroeconomic indicators displaying and delineating the structure of the economy.
Economic indicators show the general trends of economic development and growth of the economy. In the case of Pakistan, the new economic growth figures, after rebasing, show a positive and encouraging trend, notably with a GDP growth of around 5.5%. While noticing a positive effect on personal income, GDP growth rate, improvement in debt-to-GDP ratio, we see a negative impact on the tax-to-GDP ratio which went from 9.6% to 8.5 %.
Pakistan Bureau of Statistics (PBS) has compiled the National Accounts data through 36 surveys/studies out of a total of 42 assigned fiscal years in accordance with international best practices and standards and rebased the National Accounts in accordance with the 2008 System of National Accounts Data for the main economic indicators have been compiled from three sectors of the economy comprising agriculture, industry and service sectors. The National Accounts Committee (CNA) at its 104th meeting held at the Ministry of Planning, Development and Special Initiatives decided to rebase the national accounts by changing the reference year from 2005-6 to 2015-16. The size of the economy has grown from nearly $298 billion to about $347 billion, a big leap forward.
An old adage says that there are three types of lies: lies, white lies and statistics. Numbers don’t tell the whole story. The same is true of the new happy figures for Pakistan’s economic growth after rebasing the national accounts. They did not bring anything on the substance, but gave confidence to the decision makers to make informed decisions on the basis of the new income accounts at the national level.
The rebasing saw the economy swell by around 3.1 trillion rupees, taking the growth rate to 5.6% thanks to a new methodology. But what about the population explosion, rising inflation, soaring commodity prices, widening gap between income and expenditure, managing debt, exchange rate issues, job creation and large-scale manufacturing – affected due to new economic conditions proposed by the IMF as before equities, including but not limited to the autonomy of the State Bank of Pakistan? The most crucial question is whether there is a change in economic conditions after the rebasing of the national accounts. The answer is negative.
I wrote that Pakistan is facing the brunt of high oil prices, commodity prices and rising food inflation. The loan portfolio has crossed all limits with an increase in debt service which is a real headache. One can imagine the situation on the ground from the fact that foreign lending soared to $127 billion, including $10.4 billion of foreign lending secured in the last six months of the fiscal year alone. In progress. Circular debt is another headache. The trade imbalance is a serious danger with consequences for the current account deficit. The monetary policy of the State Bank is a hopeless harbinger. The entanglement of the IMF program poses another threat, dashing hopes for any improvement in the days and months ahead.
The prices of raw materials and foodstuffs broke all records, as well as the backbone of the economy and the population. All kinds of price indexes including Consumer Price Index (CPI), Sensitive Price Index (SPI), Wholesale Price Index (WPI) have broken all records over the past last three years.
Another worrying factor in debt management is the circular power and energy related debt which currently stands at around Rs 24 billion. Most of this circular debt is related to capacity payments, which can be classified as bad management decisions made when finalizing agreements with independent power producers (IPPs). But the benefit of the doubt goes to the decision-makers at the time in the government for having had a crisis situation in Pakistan, because electricity was not even available for households and the government had no financial resources to invest in the electricity sector.
Trade imbalances in the form of imports nearly doubling exports, depleting the resources needed for expensive imports, make the situation worse. Pakistan needs to increase its exports by diversifying exportable goods and services, especially in information technology exports. Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC) should be established at an early stage to improve export diversification and brand image. There is in fact a need to create industrial clusters through SEZs to stimulate and improve exports, making maximum use of electricity by utilizing the full capacity of power plants and removing capacity payments.
Instead of celebrating the new GDP growth rate, there is an urgent need to stop inflation and control prices, especially food prices. Monetary policy tools should be used with caution to stabilize prices, expand exports and create an investment climate conducive to growth. Exports should be strengthened by promoting SEZs and diversifying supply chains.
Finally, a huge loan portfolio and debt servicing require immediate government policy intervention to put in place a better debt management system, as it has all the potential to become a vicious circle disrupting the economy for many years. many years.
The author is an economist.