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ACCORDING to a recent news item, Pakistan has apparently authorised the World Bank to trigger a study to confirm that we are stuck in the age of ‘statistical darkness’, and simultaneously, figure out the size of the country’s actual GDP, which currently is believed to be understated by at least 25 per cent.
It’s rather curious that we need the World Bank to tell us the size of our GDP; if we couldn’t measure our GDP correctly in the past, we can’t do it now, and in all probability we will always get it wrong. On the other hand, perhaps the World Bank’s seal of approval on the remeasured GDP is necessary for credibility and international acceptance; after all who would believe us if one fine morning we suddenly got up and said, ‘Hey, IMF, our GDP is actually $350 billion, and not $280bn’.
So why does size matter? Well, according to a senior Pakistani economist, writing elsewhere, with a 25pc larger GDP, our global ranking will suddenly improve to 31st from 43rd; and we will likely beat South Africa, Singapore, Malaysia and Egypt! And if we achieve 31st now, we perhaps could be in the top 10 by 2030! Other than this improvement in ranking, achievable by doing really nothing, the increase in GDP is perhaps the need of the hour.
GDP revision will hardly see a tangible rise in exports.
The country is carrying out a census after almost two decades, and beyond disrupting the electoral rolls, the expectations are that there are more Pakistanis on this globe than the world is aware of. So if suddenly there were 25pc more of us, it would have a serious negative impact on the per capita income; hurling us way down the rankings with a consequent increase in the ‘poor’ indicators. That would be a planning disaster.
Another advantage of a bigger GDP is that the government will be able to borrow more; there are views that we have already burst the 60pc debt-to-GDP limit and it is only with the help of adjustments here and there that we claim otherwise. Due to the rising trade deficit and consequent increasing current account deficit, the government and central bank have already needed to resort to emergency borrowing, which is an expensive option. A higher GDP number will bring in much-needed relief for managing the debt trap, and solicit further borrowing in the global financial markets; or for simply regularising receipts under CPEC.
The downside of admitting that we got our GDP wrong for many years, and that we have an antiquated data compilation and statistical analysis system, is that we simultaneously assert that whatever was contained in the past so many Economic Survey[s] of Pakistan was, if not absolute fiction, largely incorrect.
Obviously, if we had our population numbers wrong, and did not know what our actual GDP was, it was impossible to have correctly determined the unemployment percentage; which curiously has been stagnant at around 6pc for a very long time. Additionally, our national spending on education and health, as a percentage of GDP and per capita, falls down to embarrassing levels.
Seemingly, the Federal Board of Revenue’s performance will come under scrutiny as well, since the tax-to-GDP ratio will suddenly take a 25pc shave. Further, if the gurus estimate correctly, and this sudden growth arises majorly in the service sector, the manufacturing-to-GDP ratio will consequently be adversely impacted, thereby perhaps reaffirming that we really are not an industrial nation.
Beyond economic anomalies, a suddenly higher GDP can have political fallouts as well. What stops the previous government from claiming that all this additional growth occurred during their tenure!
Like economists have always maintained, any economic decision, or inaction for that matter, even as seemingly tedious as re-measuring GDP, can have multiple effects, those seen and those not seen; to be fair I don’t claim that the above list is exhaustive. However, what can be asserted with certainty is that a revision of GDP will surely not accomplish a tangible rise in exports. It will not increase employment, and it will not increase workers’ remittance. Neither will it encourage domestic wealth to invest in business ventures in Pakistan, or for that matter convince the informal economy to merge into the mainstream, which is becoming critical day by day. I for one strongly believe that the future of Pakistan’s economy does not vest with foreigners, our own businessmen have to lead from the front and the government should be facilitating them in setting up manufacturing as a top priority.
Admittedly, those at the helm of affairs are better acquainted with the economy, and related pros and cons of revisiting GDP, to take a more informed decision; except that the debate must always continue. Cheers!
The writer is a chartered accountant based in Islamabad.
Twitter: @LeAccountant
Published in Dawn, May 21st, 2017
