It is not uncommon to see that when an individual comes under severe criticism and fails to respond professionally to his critiques, he loses rationality and indulges into personal attacks. A case in hand is our Finance Minister who resorted to personal attack on his critics, when he was exposed for grossly manipulating key economic statistics.
In a recent pre-budget seminar organised by one of the local television channels, I exposed the minister for forcing the senior staff of the Pakistan Bureau of Statistics (PBS) to get his 'desired' economic growth number. The inside story of 'forced 'economic growth also appeared in an English daily on May 21, 2016. Instead of responding professionally, the finance minister indulged in personal attack by calling me a 'Spin Doctor'. In the past, he also described one of his critics as 'pseudo economist'.
In this article I intend to show that the GDP growth number is grossly inflated for the year 2015-16. This is not the first time that the minister forced the PBS to get the desired number. In fact, the real GDP growth for the last three years has been inflated to misguide the people of Pakistan.
The readers would know that for the last three years, we have been experiencing three types of economic growth. One is the 'asking rate of growth', asked by the finance minister. Second is the 'delivered rate of growth', delivered by the PBS and the third one is the growth estimated by independent economists. In the year 2015-16, we have added a fourth rate of growth, that is, 'forced rate of growth,' forced by the finance minister.
The 'forced' rate of growth is 4.7 percent for the outgoing fiscal year2015-16 as against a growth of 3.1 percent estimated by the independent economists. Based on the performance of cotton crop (-34 percent), rice crop (-2.7%), maize crop (-0.3 %) and wheat crop (0.0 %), I had estimated the real GDP growth to be in the range of 3.0-3.5 percent for the year 2015-16. Dr Hafiz Pasha and his team in Social Policy Development Centre (SPDC) estimated the growth at 3.1 percent, which falls in my forecast range.
Why we believe that the growth as reported by the government (4.7%) for the year 2015-16 is grossly exaggerated? Firstly, the finance minister wanted to state in his budget speech that "We have achieved the highest growth rate in the last eight years". He did the same thing in his budget speech of 2014-15 fiscal year when he had stated that "We have achieved the highest growth rate in 2013-14 in six years". For this to say, he manipulated the growth statistics of 2011-12 which were brought down from 4.4 percent to 3.8 percent and as such became lower than 2013-14 (4.0%).
Secondly, growth rate in 2015-16 has been overstated in ten out of 18 sectors of the GDP, as reported in the SPDC report. Whenever agriculture registered a negative growth (like this year), real GDP never registered a growth that exceeded 4 percent in the last four decades. How come with a negative growth in agriculture, the real GDP growth accelerated to 4.7 percent? The estimate of 3.1 percent by independent economists, therefore is consistent with historical facts (See table 1).
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Government's Number SPDC Number
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Agriculture - 0.2% - 2.0%
Industry 6.8% 5.5%
Services 5.7% 4.1%
GDP 4.7% 3.1%
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Thirdly, the very fact that the GDP estimates are manipulated can be seen from the facts that provisional real GDP for the year 2014-15 is identically equal to the revised estimates for 2014-15 (See Table 2). The readers would know that the provisional GDP estimates are based on 6 to 8 months' information while the revised estimates are based on 12 months' information. How come these estimates are identical to each other? Similarly, the revised and final estimates of 2013-14 are also identical. Such a perfect estimate can never be found elsewhere in the world. This can only happen in our finance minister's world.
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Years Provisional Revised Final Result
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2013-14 - 10,211.4 10,217.1 100.1%
2014-15 10,644.3 10,629.7 - 99.9%
2015-16 11,130.0 - - -
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Fourthly, the students of economics are aware of a key economic term, known as marginal propensity to consume (MPC). In plain language, it states that if an individual's income increases by Rs 100, how much his/her consumption will increase, may be Rs 80 or Rs 85?. That is, the MPC is defined as change in consumption as a result of a change in income. In other words, the MPC range between 0 and 1. In developing countries, MPC is found to be in the range of 0.8-0.85 and in developed countries it ranges between 0.4 (China) to 0.7.
While inflating GDP number, the PBS forgot that as a result of their manipulation, the MPC has turned out to be 1.23, which is against all economic wisdom. The readers would know that consumption is treated as a residual item in our national income accounts. When GDP number was inflated, given the other components of GDP which were estimated, the residual got inflated, which, in our case, is the consumption expenditure. Even if we exclude government consumption expenditure and concentrate only on household final consumption expenditure, the MPC is estimated at 0.94 which is very high from developing countries 'perspective. What kind of statistics are we producing? We should be ashamed of releasing such statistics.
Fifthly, growth is the outcome of the type of macroeconomic policies pursued by the government. It is important to note that successive governments, including the present one, have been pursuing an IMF dictated 'Stabilisation First' or Austerity policy since 2008-09. 'Stabilisation First' is an anti-growth, anti- job creation and anti-people policy. How come economic growth accelerated to 4.7 percent in 2015-16 when the government was pursuing an anti-growth policy with 'dirty' fiscal adjustment? Can the finance minister explain this policy conundrum?
Sixthly, economic growth accelerates when both private and public sectors increase their spending. What is happening to private and public sectors' spending? The readers would know that private sector borrowing from commercial banks as percentage of GDP is on the decline over the last one decade. This ratio was 27.1 percent in 2007-08 which declined drastically to 15.0 percent by 2012-13 and declined further to 14.3 percent in 2015-16 (See graph).
Public Sector Development Programme (PSDP) also declined from 4.7 percent to 3.6 percent during the same period. Can the finance minister explain as to how economic growth accelerated in 2015-16 when both private sector borrowing from commercial banks and PSDP as percentage of GDP are on the decline?
How many more proofs are needed to suggest that the economic growth number (4.7%) is grossly exaggerated? The true economic growth is 3.1 percent in 2015-16 as reported by the SPDC. Who is then the real 'Spin doctor'? The one, who is exposing the government for manipulating statistics or the one who is manipulating the statistics and presenting them with bold face? I leave it to the people to decide. I would urge the minister that when faced with criticism, he should respond professionally instead of indulging in personal attacks.
(The writer is Principal and Dean at NUST School of Social Sciences & Humanities, Islamabad. Email: [email protected])
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