GDP: one step forward, two steps back

It turns out that the fiscal year about to come to a close has been very encouraging; at least thats what the provisional data says. Data released by the Federal Bureau of Statistics and endorsed by the National Accounts Committee has determined that economic output will have provisionally grown by 4.1 percent.
The purpose of collection of national accounts is to "provide a coherent and comprehensive picture of the economy" according to the methodology set out by the National Accounts Committee. Output data from the many different sectors of the economy is aggregated resulting in the countrys GDP.
Though, serious concerns have been raised by many circles over downward revision of last years GDP growth rate, Sakib Sherani, Advisor to the Finance Ministry told BR Research, that it is natural for National Accounts go through three phases.
Thats because provisional accounts are prepared on incomplete information; any revisions are made as required before final accounts are lodged.
For example, GDP data has been revised, every year for the past three years. In 2007-8, GDP growth was posted at 5.8 percent, revised down to 4.1 percent in 2008-9 and then further to 3.7 percent this year. Similarly, 2008-9 numbers originally posted at 2 percent have been revised down to 1.2 percent this year.
These numbers may not be manipulated, but they allow for a low base effect, boosting the present years output. Consensus estimate for GDP growth this year was set at 3.3 percent, but after revision in previous years data, growth is now projected at 4.1 percent.
It is pertinent to note that the revised output is marginally lower than the earlier consensus estimates. Had GDP rates not been revised, growth for the current fiscal would have been 1.2 percent.
If only data was being manipulated for the sake of political face saving, the problem would be relatively easy to fix. There are ambiguities in the way data is collected from the various sectors of the economy, particularly the undocumented areas.
Livestock comprises roughly 50 percent of the agricultural sector in the computation. Informed sources said that calculation for livestock, due to its undocumented nature, is carried out based on the fodder produced in the economy, in a given year.
Agricultural output grew by 2 percent this year, whereas growth in major crops was weak at 0.2 percent while minor crops shrank by 0.19 percent, which defies logic.
Similarly, Small and Medium Enterprises are assessed based on a survey conducted on SMEs in 2000. The economic landscape has changed dramatically in the last decade.
The discrepancy isn just confined to output numbers. Recently announced inflation figures sent the stock market rattling for a brief period. There also, ambiguities in calculation methods were the culprit in the higher than consensus announcement.
A major shortcoming of the Pakistani economy is the absence of comprehensive documentation. It becomes exacerbated when information released by the government is misleading. Economic agents, analysts and decision makers take the data on face value. Revisions can make costly changes to forecasts.

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                                     Output and Revisions

                       FY07        FY08        FY09       FY10P

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GDP (Rs bn)**        5191.7      5492.8      5602.7*    5671.8*

Growth (%)                          5.8         2.0        1.2*

Provision

GDP (Rs bn)**        5191.7      5404.4      5512.4      5694.3

Growth (%)                          4.1         2.0         3.3

Revision

GDP (Rs bn)**                    5383.8*     5448.4*    5671.8*

Growth (%)                          3.7         1.2         4.1

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