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THERE is more than one way to cry foul in Pakistan, and in economic affairs, the path of least resistance is to allege that the numbers have been tampered with. Most recently, the allegation of number tampering has returned with a report by an Islamabad-based think tank alleging that the GDP growth rate for the outgoing fiscal year is actually 3.1pc, and not 4.7pc as claimed by the government.
In earlier years, we have heard other allegations of number tampering too. The poverty reduction numbers claimed by the Musharraf regime, for instance, were widely alleged to have been tampered with. Later, when inflation began its downward spiral, the allegations resurfaced with people claiming that the reductions were actually engineered by manipulating the CPI basket rather than anything real.
In other places, the fiscal deficit number has attracted the same allegations, with people arguing that the manner in which the circular debt is treated in those numbers is wrong, and if included, the reported deficit would be far larger. The tax collection figure is routinely alleged to be manipulated, which has consequences for how we report the tax-to-GDP ratio.
Once you politicise the numbers enough you open the door to a truly monstrous babble of fools.
That’s one thing the numbers have in common with votes: if you don’t like what you see, you can simply allege manipulation and walk away with your convictions intact.
So what’s the reality then? Is the economic data in Pakistan really so heavily manipulated that it not only distorts, but ends up fabricating reality for us?
The short answer is no. But the long answer is where the fun begins.
Data is like food to economists, without it they would starve. It’s the only thing they work with, unlike their counterparts in the social sciences. And however imperfect the data about the economy may be, they all still work with it. Take the example of the latest report alleging that the GDP growth rate has been misreported. If this is true, then our total GDP in rupee terms should be less than what is reported on the State Bank’s National Summary of Data page. And once the GDP figure is changed then all other indicators that are shown as relative to GDP should also change.
So, for instance, once we revise our total GDP downwards, the fiscal and current account deficits as a percentage of GDP will change too, as will all sectoral breakdowns between manufacturing, agriculture and services amongst many things. It would be inconsistent, therefore, to argue that the GDP figure is misreported, but then to continue using the same percentages for the fiscal deficit and current account in building any argument.
But coming back to the GDP figure controversy, which has inspired some members of the opposition to attack the government numbers in the budget debate, how have they figured that the real growth rate of the economy in the outgoing fiscal year is actually 3.1pc and not 4.7pc?
The answer is by changing the methodology by which you calculate output. The bulk of the difference between the government figure and the think tank’s number is accounted for by recalculating the decline in the cotton crop.
The government uses a standard method to measure its output in the agri sector. It’s called the ‘production’ method, or the ‘output’ method and it basically does what its names suggests: it gives you a rupee figure for the total output generated by the given sector in the given time period. To correct for inflation or price bubbles, they use constant prices from 2005.
The think tank on the other hand uses what they call the ‘factor income approach’, where you take the value of the total output of a given sector, subtract from it the value of all the inputs that went into producing this output, and the difference is the value added that took place within the sector.
The latter approach is more sophisticated, but requires high quality data to be reliable. How did the think tank figure input prices? And how did they calculate total output? The details have not been released by them, despite numerous attempts, and until we know more about where they’re getting their own data from, it is impossible to endow the report with any credibility. Fact of the matter is that the method being used by the think tank is actually more amenable to manipulation than the government data. Is there a whiff of politics here?
There is another way in which challenging the numbers is similar to challenging votes. In both cases, the allegation has extremely pernicious effects, and for that reason should be used with extreme care. Those challenging the numbers today should realise that they ply their craft with the same data. If the general public is told repeatedly that the numbers are a lie, data will lose its efficacy altogether, and then it’s a free for all for anyone to believe what they want.
I can’t help but remember the number of times I have heard people tell me ‘all the numbers are fudged, don’t believe them, let me tell you what the truth is’ and then launch into an entirely arbitrary and gratuitous description of the state of the country and its economy. Once you politicise the numbers enough you open the door to a truly monstrous babble of fools, and if you think we’re stuck with that as it is, you haven’t seen how bad it can actually get.
At the moment the challenge to the GDP number coming from this think tank is a highly unconvincing one. Before it is allowed to gain any further traction in parliament, the methodology needs to be studied more carefully and the sources of the data that they have used need to be understood. Until then, it’s a good idea to leave that figure out of the debate and keep the focus on the clauses in the finance bill.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, June 9th, 2016
