Not many days ago, we were treated to a battle of numbers between economists from the private sector and those managing the economy within the government. In fact, there were two separate skirmishes if I recall correctly, one with the research team of this very publication. Unfortunately, it could not be established with absolute clarity as to who won.
Clearly economic data can be used out of context to support either side of the argument and depending on the indicators and ratios you choose, the economy could be doing good or bad; for the layman this might even be an amusing assertion. And since economics is not an exact science, proponents of either school of thought can stubbornly stick to their respective version and should things go south in the future, select a separate set of economic indicators to construct another fantastic narrative which explains their side of the picture once again. And since barring a handful, people are absolutely clueless about what the economy is and how it works, the deception continues indefinitely.
The proof of the pie is in the eating always. A simple observation should be sufficient to prove the views above. When, since inception of their respective publication on the economy, the Government, or the Central Bank, have admitted that the economy is not doing well and yet we have needed the IMF and Aid to sustain our economy. Even today we might not be sinking, but we definitely aren't blazing ahead.
But should it always be like this? No, it need not. While you can have fun with playing around with numbers, the risks to an economy are identifiable; and can be mitigated to a large extent by timely policy measures, except that the first step is to accept that you are wrong. More importantly, the economy is quite dissimilar to the rest of the political slogans simply because all else, including defence and development, entirely depend on the economy. Without money you can't build roads or buy tanks.
Take the latest skirmish between a columnist of a competing newspaper and the Government team. The columnist pointed out that Pakistan has imported goods and services valuing US$ 52 billion and has incurred a record trade deficit of US$ 32 billion. He also pointed out that national debt has soared to Rs 22 trillion and that the government has, on a net basis borrowed US$ 18 billion more in the last 4 years. The Government's clarification pointed out that GDP grew by 5.3%, tax to GDP ratio has improved to 13.2%, policy rate was reduced to 5.75%, foreign exchange reserves increased to US$ 20.5 billion, inflation is down to 4.16% and PSDP has been increased to Rs 1 trillion. Notwithstanding my aversion to GDP as an indicator, all of the ratios and numbers from both sides are by and large correct.
So is the economy in a good shape or is it in bad shape?
While the columnist on the basis of his choice of statistics concluded that our economic security is under threat, the government clarification went on to defend its case citing various other percentages, ratios and assumptions, and finally asserted that all is fine on the economic front. For the record, some of those explanations can easily be flipped over by using another set of numbers and assumptions. As an example, it can be argued that excessive imports in the food group, spending on travel, communication, textiles, agriculture and all other items are the reasons that the import bill was so high. Additionally, it is undeniable that international oil price crashing was the reason for the decline in inflation and also played a part in reduction in policy rate. Finally foreign borrowings are a reason why foreign exchange reserves went up. But that is not the point; what if the columnist is right, even partially?
Obviously if the Government's response is abject denial, mostly perhaps for political mileage, it's not going to do anything about it. And while economic predictions suffer from a miserable past, risks to the economy are easily identifiable. Arguably, while national debt might be at acceptable levels as a percentage of GDP, on an absolute basis it has possibly reached unsustainable levels. "However, macroeconomic stability gains made under the 2013-16 EFF-supported program have begun to erode and could pose risks to the economic outlook", extract from IMF Article IV report on Pakistan dated May 31, 2017.
Accordingly, it is perhaps in the best interest of those at the very helm of affairs to explore independent criticism on the economy and initiate debate to be better informed, rather than to rely on self-rhetoric. Frankly, the electronic media should also play a larger role in this case, by inviting both sides for an open debate to conclude one way or the other. We can either get serious with the economy or continue to have fun with numbers.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])
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