Subtle manipulation?

The Finance Minister Dr Hafeez Sheikh claimed a 4 percent growth rate for the economy while attending the World Bank/International Monetary Fund (IMF) spring meeting in April while on 26 April during the 91 meeting of the National Accounts Committee (NAC) Secretary of the Statistics Division and head of Pakistan Bureau of Statistics (PBS) gave a GDP growth of 3.2 percent.
The outcome: an angry Dr Sheikh returned and lamented what he said was the PBS's failure to take the stakeholders on board and, reportedly, blamed some bureaucrat 'malcontent' who, he claimed, was trying to embarrass the government for reasons relating to his transfer - a charge, in inimitable Dr Sheikh-style, not made openly but through innuendoes. Dr Sheikh, as the chair of the Governing Council of PBS, then proceeded to compel the PBS to revisit its methodology, which essentially implied abandoning the base year from 2005-06 to the previous base year used, namely 1999-2000. He inexplicably did not consider it a conflict of interest in identifying himself as a stakeholder, while as the chairman of the PBS Governing Council, directing the PBS to take 1999-2000 as the base year. The key question is whether Dr Sheikh's reservations and his executive decision to the PBS to recalculate the GDP based on 1999-2000 as the base year were legitimate?
A document available on the PBS website reads as follows: "the present national accounts estimates are based on 1999-2000 and have become outdated due to fast and rapid changes in the economy and economic structure. National Accounts Committee (NAC) recommended that the base should be changed to 2005-06 and new estimates may be prepared. Therefore a project "rebasing of national accounts from 1999-2000 to 2005-06" was initiated in 2006." In short, it was not a decision made by the current Secretary of the PBS nor indeed made in haste, but was made more than five years ago.
To strengthen the argument for the need to change the base year, it is relevant to note that Pakistan has used three base years since independence: 1959-60, 1980-81 and 1999-2000. The year 1999-2000 was seen as a particularly low output year due to four situations: (i) a year previously Pakistan had conducted nuclear tests subsequent to which the bulk of pledged bilateral and multilateral assistance to the country was never disbursed; (ii) Nawaz Sharif's government at the time took an economically disastrous decision namely to freeze foreign currency accounts, which in turn led to lack of confidence and capital flight; (iii) Kargil misadventure led to the country losing its diplomatic edge over India, a loss that it has been unable to regain, with repercussions on the economy; and (iv) Musharraf's coup d'etat of October 12, 1999 led to Pakistan's international isolation and it was not till September 11, 2011 that the world powers led by the US began to bring Pakistan back on the world stage. In this context, the choice of 1999-2000 as a base year was a particularly poor choice from an economic standpoint. However, politically it was astute as all gains made subsequent to 9/11 would then show a massive improvement and reflect well on the economic performance during Musharraf's dictatorship.
The reason 2005-06 may have been chosen as a base year could well be because it was the slowest growth year post 9/11 when foreign assistance was lavishly disbursed to Pakistan. Thus, the year before 2005-06 growth was 9 percent and the year after 6.8 percent. By the year 2007-08, the world polity began questioning Musharraf's commitment to the war on terror - a charge whose veracity was acknowledged by Musharraf after he was deposed and publicly admitted that money was being diverted to our border with
India, instead of our border with Afghanistan for which it was intended.
The base year, however, cannot be changed overnight, or even within one year. Extensive studies are required prior to rebasing the year on an entire range of sectors that may have assumed greater relevance with respect to the country's output over time. This was acknowledged by the PBS in its website and it indicated that extensive studies were carried out on different sectors including inland fishing, marine fishing, road transport (inter and intra city), cable operators, courier services, shipping, goods forwarding, travel agents, input-output structure of crops, foreign exchange companies, stock exchange brokers, co-operative societies. In addition, a family budget survey was required, a wholesale and retail trade survey, rent survey, census of electricity and gas distribution, census of manufacturing industries and a survey of small and household manufacturing industries among others. In short, a lot of money was expended to carry out the studies prior to changing the base year to 2005-06.
No economist would argue with the claim made by PBS on its website that rebasing is a requirement of government policy and decision-makers, researchers and national and international users of Pakistan's macroeconomic data and it is also international practice. One pertinent question prior to rebasing is if the accounts are up to international standards and acceptable as such. In this context it is relevant to note than another document available on the website titled "Pakistan Public Sector Accounting and Auditing: a comparison to international standards" dated May 2007 co-authored by the World Bank and the government of Pakistan noted Pakistan's non-compliance with our audits of International Public Sector Accounting Standards (IPSAS) on three counts: (i) did not recognise all cash receipts, cash payments and cash balances controlled by the government, (ii) did not separately identify payments made by third parties on behalf of the entity in accordance with IPSAS, and (iii) did not provide accounting policies and explanatory notes. The need for change was clearly enunciated and identified.
If Dr Sheikh was unaware of the ongoing exercise surrounding rebasing in the calculation of GDP that costs time and money for the past two years that he has been the Minister for Finance, then he needs to be more engaged in this particular branch operating under his Ministry. As the chief policymaker on economic matters he would do well to acknowledge that short-term political gains if any, with none related to his core function, namely to turn the economy around, limit his ability to take appropriate decisions based on real and reliable growth estimates. Additionally by giving himself the prerogative as chairman of the Governing Council of PBS to revise a decision that was taken before his tenure, a decision considered appropriate by all the stakeholders, he has undermined the integrity of the data which, in turn, compromises his own ability to perform well.
The PBS has since revised the growth estimate from 3.2 to 3.67 percent, still short of the 4 percent claimed by the Finance Minister in Washington, and its net outcome has been zero. Multilaterals are unlikely to extend budgetary support until and unless fiscal and Ministries specific (notably power and finance) sector reforms are initiated and implemented or the US gives a green signal to multilaterals to release lending for budgetary support though it is unlikely in the current fiscal year.