IN countries where genuine market economies are practiced, economic data like rates of economic growth, of inflation and trade balance are released periodically by both the governments as well as independent bodies like the association of industries and businesses and other such bodies as well as by large banks and financial institutions.
These private sector organizations spend millions on gathering such data in real time and collating them to present the real picture of the state of the economy of respective countries so as to enable concerned bodies to make reasonably accurate economic projections for taking prudent decisions that would affect the economies of individual organizations as well as the life and fortunes of the entire populations.
In the UK, the Confederation of British Industries (CBI) comes out with the latest economic data periodically and in India it is the Federation of Indian Chambers of Commerce and Industries (FICCI) which releases such data.
In Pakistan too, the Federation of Pakistan Chambers of Commerce and Industries (FPCCI) used to release such economic data periodically until the mid-1980s when the former finance minister the late Mehbubul Haq linked wages to the rate of inflation in order perhaps to provide quick and effective succour to the wage earners against an annual average inflation rate of 15-16 per cent. At the same time, perhaps he had also wanted to force the FPCCI to stop challenging the government’s inflation data which would invariably be at least about 4-5 percentage points less than that of the Federation’s estimates.
Since then all that we get in terms of economic data is what the government of the day puts out periodically while keeping an eye on the political mileage it would draw from it or the political damage control that it could make out of it. Even the multilateral donors, who come out with their own economic assessments of each recipient country periodically, draw exclusively from this data.
Remember, even the fudging of about Rs20 billion year after year was not detected by the IMF. It was the government of Pakistan, which volunteered the information in the year 2000 while seeking an emergency Standby Arrangement.
And the international rating agencies rate developing countries not on the basis of the economic data of the respective countries but on how popular are they with the donors, both multilateral and bilateral. In other words, countries, which are assured of long-term generous multi- and bilateral assistance get high ratings because the chances of such countries not servicing their loans from the international financial markets when due, become relatively very much less.
So, in the absence of any independent and authentic source of economic data, other than that of the government, it becomes rather almost impossible to analyze it with any degree of assurance. And it becomes even more difficult to defend the data when you know that the method through which this data was collected is grossly defective.
In this age of information revolution, we are still sticking to the manual method of data gathering introduced by our colonial rulers couple of centuries ago. And most of even this data by the time it is collated and released is by and large out- dated.
Over the years, it has been seen that whenever we are blessed with good rains, this is followed by a reasonably good agricultural production. And when this is accompanied by exceptionally high inflows of remittances, massive injections of concessional assistance from multi- and bilateral donors and consumer driven manufacturing growth with advances from the banking sector breaking all previous records, then what appears on the surface makes it impossible not to believe that the economy is doing relatively better.
But to use this seemingly rosy picture of the economy to come up with hard data of very high growth rates without backing it with credible statistics makes it a debatable exercise. There is a close co-relation between the growth rate, the savings rate, the capital out put ratio and the population growth. You can arrive at the x value of any of these four entities, if you know the values of the remaining three.
Under this formula for achieving a growth rate of over eight per cent in a country where the rate of population growth is 2.2 per cent and the capital output ratio 3.1 per cent, you need a savings rate of over 35 per cent. The current rate of savings in Pakistan is about 17-18 per cent. So, how did Pakistan’s economy grow at the rate of over eight per cent in the current fiscal when its savings rate was half of what it was needed to achieve such a high growth rate?
Another way to cross check the truth about the economic growth rate is to see at what rate have we consumed energy (electricity, oil and gas) during the year. These details will be released along with the Economic Survey of Pakistan for the year in a couple of days. We would then be able to know the truth.
Meanwhile, it would not be out of place to discuss here this aspect of growth in the context of last year. Eminent economist, Kaiser Bengali writing (Whither poverty reduction?) in the EBR weekly (May 2-8, 2005) had pointed out that manufacturing value added in 2003-04 was shown to have increased by 13.4 per cent despite a decrease in industrial consumption of electricity, gas and oil by 19.2, 13.8 and 20.7 per cent, respectively. This, he said, implied an increase of energy use efficiency of between 24 to 29 per cent between 2002-03 and 2003-04. The sharp enhancement in energy use efficiency in the manufacturing sector over the period of just one year according to him raised questions of plausibility.
The economies of developing countries like Pakistan do need to grow at a faster rate to be able to stand on their own two feet in the comity of nations and at the same time also improve the quality of life of their populace. For such countries even a growth rate of eight per cent is far from sufficient for the purpose. In fact, the trickle down impact of such rates does not even reach the poverty line and stops far above at near the line that divides the rich from the middle classes. This type and rate of growth make the rich richer and the poor poorer.
According to a recent study by the SPDC, with every addition of one rupee to the country’s GDP, 40 paisa go to the affluent 20 per cent of the population and seven Paisa to the poorer 20 per cent. This is happening even without the negative impact of an inflation rate of over 10 per cent which, if taken into consideration would then add to the miseries of the poor even further.
Even the middle classes find it impossible to hold on to their standard of life with the prices galloping at such a high rate. Most do fall down the poverty line. And this expanding of sea of poverty would eventually overtake the growth rates and choke them off causing the macroeconomic stability achieved with so much of external helping hand to disappear in no time.
In order, therefore, to accelerate further the growth rates and sustain them, it is essential that the government introduced the second generation of structural reforms in all honesty and sincerity and quickly, that is through the next year’s annual budget.
The first phase of structural reforms which were mostly price driven rather than equity oriented while allowing the economic managers to achieve a modicum of macro- economic stability had taken a heavy toll of the poor and at the same time it had also allowed vertical monopolies to emerge in the country. The poor mainly shouldered the consequent hardship of these reforms.
One hopes that the hardships resulting from the second phase of structural reforms would be shared equitably between the poor and the rich. In this context one expects the government to make income tax reforms, land reforms and the reform of laws of property rights the main plank of the second generation reforms. In Pakistan only 55,000 people show an annual income of over Rs.250, 000. This is pathetic.
There are many ways to net in those who do not pay any income tax and also those who pay far less than their due. The government should make it its first priority in the second generation reform phase to unearth the income tax avoiders and evaders.
For the last five years the government has been proudly claiming that it has introduced massive reforms in the taxation system. But the bottom line even today is no more than a million pay the income tax in this country. And the indirect taxes whose incidence and rates keep increasing to cover the widening gaps between the government’s income and expenditure impact the poorer sections more than the rich.
The majority of the population, which lives in the rural areas, would remain perpetually poor if it were continuously denied the right to landed asset. Of course, the technological revolution has made cultivation of small little pieces of land highly uneconomic. But a genuine and judicious land reform followed by government sponsored cooperatives with the public sector financing the technical and other inputs and banks contributing their own share of risks would bring about a positive change overnight in the rural Pakistan and reduce poverty sharply.
Similarly, the laws concerning property rights in the urban Pakistan would make all those poor people living in the so-called kutchi abadis property owners overnight and thus bring down poverty significantly. In this regard one would like the government to take another look at the Hernando De Soto’s theory of property rights. He says:” Every developed nation in the world at one time went through the transformation from predominantly extra-legal property arrangements, such as squatting on large estates, to a formal, unified legal property system. In the West, we never realized that capital is a dormant value hidden in the assets and talents we own and which legal property brings to life.”
