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Photo Source: The Express Tribune

Pakistan Reader# 285, 1 February 2022

Pakistan’s Economy: A new baseline, with 2015-16



The analysis provides two reasons for adopting a new baseline, and a critique of it

Ankit Singh

On 20 January, the Pakistan Bureau of Statistics (PBS) shifted the baseline to measure the macro economic indicators post the approval of the National Accounting Committee. 

The base year was changed from FY2006 to FY2016 propelling, the GDP growth rate from 3.94 per cent to 5.37 per cent. The GDP has also been revalued from the current estimation of USD 287 billion to USD 347 billion. In terms of sectoral-wise contribution, the share of agriculture increased approximately by USD 3.16 billion; industry by USD 3.6 billion; and the services by USD 10.8 billion (at the current exchange rate). 

Besides the above, the large-scale manufacturing index has also been updated from the census of manufacturing industries (CMI) of 2005-06 to 2015-16. The government has added 11 items to the list of large-scale manufacturing indexes by including commodities like insulated wiring, towels, accessories for cars, mineral water, pesticides etc.

Why the new baseline?
There are several reasons behind the much-awaited current rebasing of national accounts.

First, the rebasing is performed periodically to keep up with price evolution, currency’s relative value and changes in existing economic conditions. There are gains like a surge in nominal GDP, decreased debt to GDP ratio and increased proportional sectoral contribution. These benefits have helped ruling governments in improving Pakistan’s macro-economic perceptions and long-term projections. However, rebasing of national accounts has been irregular in Pakistan. 

Post-liberalisation, Pakistan rebased its economic accounting from FY81 to FY00, it helped in the surge of nominal GDP by 21.6 per cent, while the debt to GDP ratio decreased by 25 per cent. Another rebasing was done in 2013 when the baseline was changed from FY00 to FY06 which again improved nominal GDP by 7.8 per cent and debt to GDP ratio reduced by 4 per cent. The current rebasing similarly has improved the nominal GDP by 12 per cent, the debt to GDP ratio has decreased by 11.7 per cent. 

However, there are cons post rebasing in economic accounting, for example, the tax to GDP further decreases, the tax to GDP ratio reduced to 8.5 per cent from 9.6 per cent. There is a further reduction in health and education expenditure. As one can observe the nominal GDP, which is primarily led by market forces in Pakistan, does not accrue any specific benefit to the government as it is not a state-led economy. Had the tax revenues also increased with nominal GDP it would have enlarged the fiscal space for the government. 

Second, the PTI government has specific reasons. The government has been jinxed with the overheating of the economy (higher imports than exports), restrictive monetary policy, surging commodity prices causing inflation. With the recent passing of the mini-budget and SBP amendment bill, the removal of tax exemptions and a more sovereign SBP could further aggravate the economic woes. The rebasing will enlarge the macro-economic figures and they would be used as a healer in countering the questions about the regulatory economic role of the government. 

The government with this rebasing has strengthened its position vis-a-vis the empowered SBP and other multilateral evaluations. Now SBP would reconsider the required remedies and guidelines which had been in offing before 20 January. If one looks at GDP growth trends over the years, one can see rebasing has been done when the GDP growth rate is vis-a-vis time. The highest inclination in a particular year is 2006-07 or 2016-17 has provided the maximum upward inclination as a reference for further projection.

Rebasing: A Critique
The rebasing of economic accounting is fruitful and promising when the data and the institutions calculating it are authentic. Pakistan’s institutions in terms of autonomy and accountability do not have a transparent record. in terms of autonomy and accountability do not have a transparent record. The Pakistan Bureau of Statistics suffers from the same problem, other than CMI of large-scale industries, the census used for rebasing in agriculture is around a decade old.

The retail and service sectors are yet to record an updated census in terms of resources and capital gains. It indicates the rebasing could have been more qualitative in capturing price evolution and recording the true structural changes in the economy. 

Finally, the issue of informal economy which remains beyond the purview of national accounting. The informal economy in Pakistan is critical to rising middle-class aspirations in Pakistan. According to a research paper by M. Ali Kemal and Ahmed Waqar Qasim from PIDE Islamabad, the informal economy is estimated to be around 97 per cent of the formal economy in 2007-08. This means the accounting would still lack trust as there is a famine of primary statistical data in Pakistan and if it's there it is outdated. Ignoring the importance of trust deters potential investors looking for returns around the globe. 

The projection of macro-indicators might have improved but the Pakistani governments need to walk firm on the importance of transparency if they want to capitalise on its human resources. Otherwise, the fiscal space for the government won't improve and the scope of error of judgments and speculations would remain in an uncertain and vulnerable zone.

Reference
M. Ali Kemal and Ahmed Waqar Qasim, “PRECISE ESTIMATES OF THE INFORMAL ECONOMY,” PIDE Islamabad, 2009
Flattening yield curve?,” Business Recorder, 31 January 2022
The widening income versus expense gap,” Business Recorder, 24 January 2022
Ali Khizar, “GDP rebasing: fix PBS first,” Business Recorder, 13 September 2020
Shahbaz Rana, “Rebasing of economy pays dividend to govt,” The Express Tribune, 21 January 2022
Tahir Amin, “Quantum Index of LSMI rebased, Business Recorder, 20 January 2022
Bilal Gilani, “The right and wrong of rebasing,” The News International, 31 January 2022
Ishrat Hussain, “Deficient data,” Dawn, 24 December 2021

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