SPDC's view of the economy

The Social Policy and Development Centre (SPDC) usually highlights government's policy failures and seldom gives it credit for any of its achievements. While launching a review and analysis of the Economic Survey for 2003-04 and the budget 2004-05, on 15th July 2004, the SPDC did not budge from its tradition and found a number of shortcomings in economic policy and performance.
The glaring deficiency of Economic Survey, according to the Managing Director of SPDC, is its claim that poverty level had declined which is counter-intuitive and against the findings of SPDC researchers.
The 10 percent richest households in Pakistan had actually increased their purchasing power by 33 percent between 1998 and 2002, while the poorest 10 percent had suffered a further 9 percent erosion in their purchasing power.
The worsening income distribution situation could also be seen in the fact that the share of richest 20 percent of the country in the national income had increased from 44 percent in 1988 to 47 percent in 1999 and to 48 percent in 2000.
Correspondingly, the share of the poorest 20 percent population had come down from 9 percent in 1988 to 8 percent in 1999 and to 7 percent in 2000. Yet another observation of the SPDC is that a North-South divide is emerging in Pakistan, where the two northern provinces, Punjab and NWFP, had poverty incidence less than 30 percent while Sindh and Balochistan had poverty levels much above 30 percent.
Balochistan with a poverty incidence of 50 percent was the worst case. Another disturbing aspect was the phenomenon of jobless growth because of acceleration in high growth industries, which were largely capital-intensive.
According to the SPDC document, "despite the high GDP growth and even higher large-scale manufacturing growth, unemployment has risen." The rising unemployment was partly attributable to contractionary macro-economic policies designed to serve stabilisation objectives at the cost of growth.
The SPDC has appreciated the rise in development budget to Rs 202 billion in 2004-05 but has made a case for its increase to 5 percent of GDP which if worked out at 2004 prices should have been at Rs 255 billion.
Kaiser Bengali, Chief of SPDC, was also not happy with current account and inflation indicators but was particularly critical of the methodology of working out certain important data which made its credibility suspect.
Conceding that the re-basing of national accounts with a comprehensive coverage of the economy was overdue, it was pointed out that the government should have made public, well in advance, the methodological details of the re-basing exercise and published its outcome along with the old 1980-81 base in order to allow comparison of growth rates in various sectors under the old and new regimes.
The SPDC publication quotes a large number of instances where data and information appear to be incomprehensible and could not be analysed because methodological details were still awaited. A 30 year review of the budgetary exercise shows that the basic structure of revenues and expenditures has remained more or less constant, unemployment and poverty have continued to rise, income and asset distribution has become more unequal inter-personally and inter-regionally while access to basic opportunities and services for the poor has tended to stagnate.
It is, therefore, necessary to consider a pragmatic shift in the manner allocation of tax burdens and expenditures in Pakistan.
We feel that it is always better to have an alternate view of the economy but it should be a balanced one and based on a very comprehensive analysis. Unfortunately, however, SPDC is always miserly in appreciating the achievements while mostly the failures are focussed upon.
The institution has been particularly severe on the present dispensation, which has done a lot for the economy of the country. During the last few years, the macro-economic situation has been stabilised because of consistent reform efforts which often entailed harsh measures and the country is now looking forward to higher growth and the distribution of its fruits to all sections of society.
The 6.4 percent growth rate during 2003-04 was the highest achieved in the last eight years. The per capita income has also increased from 526 dollars in 1999-2000 to 652 dollars in 2003-04. Indications are that prospects for these aggregates would be even better in the coming years.
Price stability, exchange rate improvement and increase in reserves are the other hallmarks that cannot be ignored. A very sound basis on macro level has now been laid and, hopefully, in the next stage the government would be able to address social sector issues, including poverty and unemployment.
SPDC has argued for an increased allocation of Rs 53 billion for PSDP but has not clearly identified the areas from where such a huge amount could have been diverted to translate this idea into reality.
SPDC, as is well known, usually favours expansionary policies without realising that such a policy stance could quickly lead to excessive inflation, flight of capital, dwindling of foreign exchange reserves and depreciation of the rupee. SPDC needs to realise that, in a country like Pakistan famous for government profligacy, it is essential to maintain a proper balance between the availability and use of resources, find fiscal space for social sectors before implementing social sector agenda and at the same time ensure that inflation remains subdued.
It does not mean, however, that all the observations of SPDC do not merit serious consideration. The government, in our view, has made certain mistakes that need to be looked into seriously.
For instance, SPDC is right when it says that while re-basing the national income account data, the government should have discussed the methodological details and also compiled figures on the old pattern to have a comparative view. Besides, the government needs to seriously think about estimating poverty and unemployment data correctly.
In the Economic Survey, poverty, based on scant information, was shown to be declining and unemployment, with certain qualifications, at a ridiculously low level. Given the situation on the ground, nobody would believe such statistics. SPDC has come up with its own figures on shift in incomes and poverty but it is difficult to judge their accuracy.
In order to enhance the credibility of the official figures which should also be acceptable to institutions like the SPDC, we would urge the government to accord complete autonomy to the Federal Bureau of Statistics and charge it with the duty to compile and present all the important data independently on a very comprehensive basis and without interference from influential quarters.