The people of Pakistan are seriously concerned about the current state of Pakistan’s economy. While the government, on the one hand, is claiming success in reviving the economy, experts from within and outside the country, on the other hand, present a dismal state of affairs
This article deals with the current state of economic recovery. Pakistan’s economy has seriously been damaged by the previous regime during 2008-09 to 2012-13. Apart from growth and employment, almost all key macroeconomic indicators worsened during the previous regime. By the end of its tenure, the country was on the verge of external payment default and had no option but to seek IMF assistance.
Given the state of the economy that evolved over the last five years, no one was expecting a miracle to happen in a short period of time. In the desire to show massive improvements all around in a short period of time, the government indulged in massive manipulation of statistics.
Bent upon showing a growth number of more than four per cent in the year 2013-14, the government played havoc with national account statistics. Firstly, for two years (2011-12) the old real GDP growth number (4.4 per cent) was revised downwards to 3.8 per cent to make the case that the real GDP growth of 4.1 per cent in 2013-14 was the highest in the last six years. Secondly, the large-scale manufacturing number for July-March 2013-14 was available at the time of the National Accounts Committee meeting in May 2014 but the government preferred to use the July-February 2013-14 number for obvious reasons because this was higher (5.3 per cent) than the July-March (4.6 per cent) number. Thirdly, the extraordinary growth in construction inflated real GDP growth by 0.3 percentage points alone. Should any sensible economist believe these numbers? Dr Hafiz Pasha, a noted economist, has already dubbed investment numbers “rubbish”.
It is for these reasons that no professional economist from within or outside the country accepted the growth number of 4.1 per cent for the year.
The statistics pertaining to large-scale manufacturing (LSM) for the complete year (2013-14) is now available. A careful review of these numbers speaks volumes about our supposed economic revival and the controversial economic growth number. The LSM grew at an average rate of 4.3 per cent during the first two months (July-August) of the last fiscal year (2013-14). Growth suddenly accelerated to 11.4 per cent in September and then fell sharply to an average of 3.7 per cent during October-November only to accelerate once again to 11.3 per cent in December. My view has been that the LSM numbers for September and December were cooked up. I expressed my views through a series of articles and also at the Economic Advisory Council meeting headed by the finance minister.
No one paid any attention. The LSM growth was continuously on a decelerating path with January-June (second half of the year) growth slowing to an average of 1.7 per cent. Excluding the cooked up numbers for September and December, the LSM has registered a growth of 2.5 per cent in 2013-14 — far lower than 4.1 per cent in the previous year (2012-13). The decelerating trend in LSM continued in July 2014 (the first month of the current fiscal year) when it exhibited a growth of only 1.1 per cent. The bottom line is that the country’s industrial activity, instead of witnessing revival, is in fact, experiencing a sharp downturn.
Holding other things constant, if we simply adjust the LSM number, incorporate its implication for value-added in wholesale and retail trade and adjust the inflated number of value added in construction, the real GDP growth for the year 2013-14 hovers around 3.3-3.5 per cent. This number is more or less in line with the average growth rate for the last six years. The recent numbers clearly suggest that Pakistan’s economy is further slowing down with serious consequences for poverty and unemployment. The initial euphoria of the new government appears to have lost momentum within a few months of it being at the helm of affairs.
Published in The Express Tribune, October 10th, 2014.