KARACHI: Adviser to the Prime Minister on Institutional Reforms and Austerity Dr Ishrat Husain came down heavily on sceptics who doubted the Gross Domestic Product (GDP) growth rate of 3.94 per cent for 2020-21.

Speaking at the Institute of Business Administration (IBA) at a post-budget discussion on Friday, the PM’s aide asked the doubters of the official number why they had never questioned the preceding year’s GDP contraction of 0.47pc.

His speech followed a multi-slide presentation by IBA Executive Director Dr Akbar Zaidi in which he cast doubt on the accuracy of the official growth rate. “There has certainly been growth in the economy, but it’s improbable that it’s 3.94pc,” Dr Zaidi said while presenting the budget analysis prepared by IBA economists.

The high growth rate, Dr Husain said, came out of economic activity that “rapidly picked up the pace” in the second half of 2020-21.

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Referring to the proxy indicators that were “high-frequency data points, not assumptions” as the basis of the projected growth rate, the PM’s aide gave the example of Rs1,100 billion that moved from the urban economy to the rural economy following bumper crops, except wheat, creating a huge multiplier effect in 2020-21.

The IBA executive director had earlier questioned how large-scale manufacturing could expand 9.3pc when the electricity and gas sub-sector dropped almost 23pc.

Dr Husain explained “as economists we know” electricity generation actually rose 6.5pc in 2020-21. “Subsidies are income for Discos (distribution companies). If the federal government reduces subsidies, value-addition to GDP declines. But in volume terms, you have an increase,” he added.

The PM’s aide also took exception to Dr Zaidi’s use of the unemployment rate of 25pc in his presentation. “We don’t have robust data. We carried out the last labour force survey in 2017-18. People who claim that so many people have lost jobs should tell me what the source of their data is. Have they carried out any surveys? I urge IBA not to rely on secondary data. Carry out surveys, collect primary data and base your analysis on that,” said Dr Husain, a former IBA director and State Bank governor.

On the subject of devolution of power and distribution of federal resources under the National Finance Commission (NFC), the premier’s adviser said the process remained incomplete. The provinces were holding on to the powers that should ideally rest with local bodies, he said.

He also defended the “suppression of demand” in the pre-Covid period of the PTI government. The government had to raise $28bn just to avoid defaulting on international loans, he said. Excess demand would’ve spilled over into imports and worsened the crisis in the external sector, he said.

In his presentation, the IBA executive director said data showed tweaks in the benchmark interest rate by the central bank had little impact on food inflation. “It was as high as 13-15pc for most of the year despite a low policy rate.”

He said rising oil prices and a higher-than-expected import bill would likely create fiscal constraints for the government in the next fiscal year. “My sense is the government will be compelled to either cut its spending or leave the IMF programme,” he said, adding that the growth rate would likely hover around 4-4.5pc against the target of 4.8pc for 2021-22.

According to Reuters, the International Monetary Fund is estimating GDP growth rate for 2020-21 at 1.5 per cent, while the World Bank puts the expected expansion at 1.3pc.

Published in Dawn, June 19th, 2021