KARACHI, July 18: The Social Policy and Development Centre (SPDC), a well-known Canadian aided private research consultancy, has questioned the credibility of the government claim of bringing down the poverty ratio by 10 per cent from 34.5 per cent in 2001 to 24 per cent in 2005 and has demanded release of full survey data of Pakistan Social Living Standards Measurement (PSLM).

“The government did not oblige us when we asked for this data,” Dr Shagil Ahmad, the acting managing director of the SPDC informed journalists on Tuesday on the occasion of release of 2006 SPDC report “Growing Macro-economic Imbalances.”

Dr Shagil has replaced Dr Kaiser Bengali as the SPDC managing director after he was targeted by the government and removed from the position as the SPDC’s reports in last few years blamed official policies, designed under IMF and World Bank guidance, for aggravating economic inequality, causing provincial disharmony, wrecked education and social sectors and for pushing more people down the poverty line with every passing day. Dr Shagil was assisted by Dr Qazi Masood.

Conceding to the government’s position--that a significant growth in economy and increase in development expenditures in recent years should have reduced poverty to a certain level but, he explained “at the same time, the official figures are likely to represent a substantial over-estimate of the extent of poverty reduction in the presence of clear offsetting factors.”“But inflation is high and income inequality is also growing,” he pointed out while identifying the offsetting factors in curtailing poverty. He explained that during the period 2002 to 2005, monthly real consumption of the richest 20 per cent of the population grew almost four times more than the consumption of the poorest 20 per cent. “Given these partially offsetting factors, the extent of poverty reduction seems to be overestimated by PSLM data,” he said.

The SPDC has doubts on government’s claim of creating 5.82 million new jobs between 2004 to 2005 as the Labour Force Survey (LFS) was conducted for the first time on quarterly basis that was compared with an old survey based on annual data. The results that emerged from the comparison of the new LFS on quarterly basis with the old one based on annual survey are “implausible.” These implausible findings revealed that 80 per cent of the new jobs were created in rural areas, the labour force in agriculture has increased, while that in trade and services has declined and that female literacy rates have risen in rural areas but declined in urban areas.

“The SPDC cautions against inferences being drawn about employment and other trends from comparison of the new quarterly LFS with the previous annual ones. “True investment picture remains unclear,” Dr Shagil remarked while expressing his doubts, as he elaborated “the investment picture appears to have improved, but there has been substantial data revision for 2004 and 2005, which have not been well explained by the government,” he said while quoting investment figures of the Economic Survey of the previous two years.

In his presentation, the SPDC acting managing director acknowledged the improvement in economic performance as manifested in “sustainable rate of growth over the past few years,” but also at the same time drew attention towards some worrisome factors present in the economic situation that results from the growing macroeconomic imbalances.

The imbalances, he declared in a clear tone, posed serious downward risks to the economy and threatened the hard-earned macro-economic stability and policy credibility. These imbalances manifest themselves in the form of a level of domestic demand that is much higher than domestic production, a huge trade deficit and the failure of inflation to recede to an acceptable level. If not controlled, the SPDC chief warned these imbalances could jeopardize the very objective of high long-term sustainable growth with price stability.

Dr Shagil maintained that the SPDC annual review highlighted both positive and negative aspects of the federal budget 2006-07. It accepted that the rise in fiscal deficit was largely driven by the post-earth quake reconstruction expenditures and a large increase in the allocation of public sector development programmes. However, he stressed, not enough had been done by way of expenditure switching and raising of tax revenues to finance these larger expenditures in a more sustainable way. “As a result, the expansionary stance of fiscal policy has continued, which will make it much more difficult to control inflation.” the SPDC warned.

Referring to the stipulated 4.5 per cent budget deficit in FY 2007, the SPDC chief said expected increase of Rs110 billion bank borrowing “is not a good sign in the current environment of high inflation.” The non-bank borrowings are expected to decline by 70 per cent.

The SPDC report refers to the pro-poor development expenditure and relief measures in the 2006-07 budget that include a 25 per cent increase in minimum wage, an increase in tax exempt level of income and a decrease in effective tax rates of the low salaried workers and a substantial increase in food and other subsidies. But in the same context the SPDC warns against “over-estimating the importance of the subsidy and relief measures in the budget, not counting the tax-relief, the subsidies and relief amount to Rs109 billion.

As a share of GDP the Rs109 billion subsidies is 1.25 per cent in 2006-07 as against 1.1 per cent in 2005-06 when the subsidy amounted to Rs83 billion.

There is a doubt on government’s ability to contain current expenditure level in 2006-07, which are being projected to fall by 4 per cent over the revised estimates of 2005-06. “It is important to note, however, that the revised estimates represented a 12 per cent overshooting of the original target,” the SPDC report points out while warning that the current expenditure tendency is to substantially exceed target year after year.