GDP rebasing: no more delays!

[Kambojaric]

There is little doubt that the size of Pakistan’s economy is understated. Many economic indictors such as per capita income and debt levels depict bleaker picture than the situation on the ground reflects. When size of the economy is understated, it makes debt to GDP ratio appear unsustainable, in turn weakening government’s bargaining power with lenders such as IMF.

One strong indicator about economic activities in any economy is national electricity consumption. Most readers would be surprise to find out that per capita grid electricity sales are 25-30 percent higher in Pakistan than in Bangladesh. Many commentators point out that GDP per capita has become higher in Bangladesh over the last decade. But it is pertinent to note that while electricity consumption is based on actual data, GDP of any economy is based on many assumptions and estimates and is based on the level of documentation in any economy. Ergo, it would appear that the level of documentation in Bangladesh is significantly higher in Bangladesh than in Pakistan.

Yet, infrastructure and construction actives are significantly greater in Pakistan than in Bangladesh. Domestic annual cement sales in Pakistan are at 48 million tons against 33 million tons in Bangladesh; in per capita terms, the spending is 10 percent higher in Pakistan. Existing road infrastructure is also of better quality and much more extensive in Pakistan (although latter may also be an indicator of greater geographic area). Similarly, number of passenger vehicles in Pakistan – including much more pertinent, vehicle per 1000 persons – is also higher.

The purpose, of course, is not to undermine the economic performance of Bangladesh, and the significant gains made by that country in past two decades. However, it is equally important to engage in undercutting ourselves. Anecdotal evidence suggests that the widely held perceptions of smaller size of economy – exacerbated by lower growth rate in recent years – also contributes to brain drain; as skilled workers seek opportunities elsewhere due to bleak outlook.

Pakistan conducted its last GDP rebasing exercise in 2005-06. GDP rebasing becomes due every ten years, yet it has been much delayed since. Since the PTI government took office, work has been undertaken on the same for the last two years. Yet, the problem is that the post of chief statistician has been vacant for over three years. There are many sectors which have experienced mushroom growth since the last rebasing exercise was completed, and they are not fully recorded in GDP. For example, the value addition segment of textile industry is not recorded in official GDP. Similarly, packaging across many industries is not included. Economic activities is simply much greater than what the official estimation represents.

Then the undocumented cash economy is also growing fast. The velocity of money (computed as nominal GDP divided by broad money – M2) is down from the average of 2.6 during FY10-14 to 2.1 percent during FY17-21. The velocity in any country doesn’t change so abruptly. The catch lies in clamping down on cash economy. The currency in circulation kept on growing since 2015, and falling velocity implies that cash is not coming back into the system. It is turning into a mini-economy unto its own.

The excess average annual CIC (difference between the average CIC/M2 ratio in FY18-21 at 28% to FY10-15 ratio at 22%), of Rs1.2 trillion could have generated undocumented GDP of Rs3.1 trillion at the historic velocity of 2.6. In comparison to Bangladesh (CIC/M2 at 13%), Pakistan’s cash economy is double the size.

Planning ministry must bring life to the Bureaus of Statistics (PBS) and speed up GDP rebasing. Once its done, apples can be compared to apples, which can also help restore Pakistan’s negotiating position with global lenders.

GDP rebasing: no more delays!

There is little doubt that the size of Pakistan’s economy is understated. Many economic indictors such as per...

www.brecorder.com

 

[Kambojaric]

Why do countries revise their national accounts?

← Gross Domestic Product (GDP)/Gross National Income (GNI)
The accuracy of national accounts estimates and their comparability across countries depend on timely revisions to data on GDP and its components. The frequency of revisions to GDP data varies: some countries revise numbers monthly, others quarterly or annually, and others less frequently. Such revisions are usually small and based on additional information received during the year. However, in some cases larger revisions are required because of new methodologies and changes to the base year. The new base year should represent normal operation of the economy—it should be a year without major shocks or distortions.

Comprehensive revisions of GDP data usually result in upward adjustments as improved data sources increase the coverage of the economy and as new weights for growing industries more accurately reflect their contributions to the economy. These revisions may cause breaks in series unless they are applied consistently to historical data. For constant price series a break caused by rebasing can be eliminated by linking the old series to the new using historical growth rates. But for nominal GDP data a break in the time series cannot be avoided unless the statistics office revises historical series. Because rebasing real GDP and its components leaves the pre−base year current price series unchanged, the GDP deflator calculated from these two series is skewed for pre−base years. Other series affected by the break in GDP are fiscal indicators expressed as a percentage of GDP. When nominal GDP is revised upward, the ratio of revenue and expenditure to GDP look smaller than previously reported.

Why do countries revise their national accounts? – World Bank Data Help Desk

datahelpdesk.worldbank.org

 

[Pakistan Space Agency]

... Since the PTI government took office, work has been undertaken on the same for the last two years. Yet, the problem is that the post of chief statistician has been vacant for over three years. There are many sectors which have experienced mushroom growth since the last rebasing exercise was completed, and they are not fully recorded in GDP. For example, the value addition segment of textile industry is not recorded in official GDP. Similarly, packaging across many industries is not included. Economic activities is simply much greater than what the official estimation represents. ...

This is what I have been trying to explain to PTI supporters for the last 3-years

 

[Kambojaric]

This is what I have been trying to explain to PTI supporters for the last 3-years

I have edited your post to remove the derogatory terms for PTI supporters. No issue at all with political opposition but the name calling will invite PTI supporters to use similar words for the political party you support and all the genuine points being made will be lost in a pile of nonsensical name calling. See this as a polite reminder.

Coming to the point of your post, yes there is a strong case to argue that the incumbent government has failed in this issue. That the post of Chief Statistician has been vacant for three years is not a good sign at all. However at the same time the failure is collective. Previous governments similarly had the opportunity to rebase the economy but failed to deliver as well.

 

[Baz2020]

This is what I have been trying to explain to PTI supporters for the last 3-years

Do you suggest pml n or ppp to take over from pti. Lets hear from the horses mouth.

 

[Protest_again]

Pakistan economy should be bigger than Bangladesh no doubt about it. Bangladesh is only good at GDP number which like the article said is based on lot of assumptions. All other factual consumption numbers should reveal the truth of their economy.

 

[FuturePAF]

Any educated guess what the real GDP and GDP per capita actually are? Will revising the GDP numbers help the government attract FDI and or revise FDI inflows to the needed 3% ?

More than seeing GDP numbers going up people want to see wages increase sustainably, people want to see exports numbers grow, and people want to see revenue coming into the government coffers so that Pakistan need not have to take out any more loans from external creditors.

now is the time for structural reforms, and I fear we may end up patting ourselves on the back if we revise the numbers upwards and rest on our laurels. At the very least revising the numbers should come with increasing the tax base, especially from the erstwhile undocumented economy.

 

[Kambojaric]

now is the time for structural reforms, and I fear we may end up patting ourselves on the back if we revise the numbers upwards and rest on our laurels.

Interesting point but this makes the lack of rebasing for so many years even more bizarre. Surely politicians should have been throwing themselves at this potential propaganda booster. Alternatively PTI might be waiting for the elections and use this as a tool to draw votes next time around.

 

[Patriot forever]

Interesting point but this makes the lack of rebasing for so many years even more bizarre. Surely politicians should have been throwing themselves at this potential propaganda booster. Alternatively PTI might be waiting for the elections and use this as a tool to draw votes next time around.

There are many loopholes in our gdp calculation, I will just give a few examples to elaborate..

1) We take into account the number of cars produced but not the actual sales value of these cars as over the past couple of years the share of compact suv or sedans have expanded greatly indicating a massive increase as compared to smaller units like mehran in the actual value of sales/production.

2) Similarly in textiles industries, ready made garments both in value and volume has expanded greatly but it barely reflected by growth in this segment as their is no method to incorporate value addition.

3) Real state segment is an another aspect one needs to look into as there is no actual method rather than just sale of cement or steel consumption.

LSM sector has huge gaps and is calculated on a preset list of products/industries. e.g. Few home appliances make it to list and that too 1 ton air-conditioned is equal to a 2.5 ton unit etc. Same goes for mobile assembly/ production or sales where Nokia is equal to a 4G capable smartphone.

I do not want to make it political but since someone posted in above comments, PTI will benefit the most from rebasing or methodology as most of value addition especially in textile auto appliances sector construction finishing products etc is happening or about to come online in the last 2 years or moving forward.

 

[Kambojaric]

Any educated guess what the real GDP and GDP per capita actually are?

Would also like to know. I have read a "hunch" of 25% disparity*

*GDP was last rebased in 2006, and nominal GDP was increased by 8 percent. Earlier in 2000 rebasing, it was increased by 22 percent. The anecdotal evidences suggest that the real economic growth is understated during 2015-18. Census of Manufacturing Industries (CMI) is taking place. Door to door surveys show that growth in number of firms is significant. The response from Karachi is poor and the survey could not be completed yet. This writer's hunch is that nominal GDP can shoot up by 25 percent.

Understated GDP

It's no news that informal economy is significant in Pakistan. What some would not know is that within documented economy, not everything is measured in GDP computation. It can be said with confidence that GDP is significantly understated in Pakistan. Onc

www.brecorder.com

 

[Wood]

Pakistan exports is around $25 billion for a GDP of around $270 billion. This looks unnaturally low.

 

[Pakistan Space Agency]

Do you suggest pml n or ppp to take over from pti. Lets hear from the horses mouth.

Definitely PML-N had a much sound economic policy compared to the PTI Government.

I feel the current Government is tracking backwards, i.e. hopelessly insisting on diversification of economics and trade and not sticking with the Look East Policy.

The West is not interested in Pakistan for trade and economics as long as Pakistan refuses to make China's it's enemy and allows itself to be used by the West to stymie Chinese trade growth in South Asia and Central Asia.

It's that simple, it's not rocket science.

The previous Government adopted CPEC with both arms, no questions asked and did not allow any questioning and did very very well in just 2-3 years. However, the current Government has turned CPEC into a controversy to the extent that China is now officially lecturing Pakistani Government on the safety of their citizens in Pakistan.

How and why this level of incompetence has been allowed to mushroom so quickly in just two-years?

The nominal GDP of Pakistan was around $315 billion in 2018 and it has been systemetically set back to $264 billion in 2020 when it should've grown to at least $330 billion - $350 billion by now.

 

[Patriot forever]

Definitely PML-N had a much sound economic policy compared to the PTI Government.

I feel the current Government is tracking backwards, i.e. hopelessly insisting on diversification of economics and trade and not sticking with the Look East Policy.

The West is not interested in Pakistan for trade and economics as long as Pakistan refuses to make China's it's enemy and allows itself to be used by the West to stymie Chinese trade growth in South Asia and Central Asia.

It's that simple, it's not rocket science.

The previous Government adopted CPEC with both arms, no questions asked and did not allow any questioning and did very very well in just 2-3 years. However, the current Government has turned CPEC into a controversy to the extent that China is now officially lecturing Pakistani Government on the safety of their citizens in Pakistan.

How and why this level of incompetence has been allowed to mushroom so quickly in just two-years?

The nominal GDP of Pakistan was around $315 billion in 2018 and it has been systemetically set back to $264 billion in 2020 when it should've grown to at least $330 billion - $350 billion by now.

Bro the type of products we have has little market in the East. Are you hoping to sell textiles to China, Vietnam, Bangladesh etc? Middle East holds potential though.

Again GDP in dollars, just fix dollar for your calculation at 100-120 and calculate GDP, after all value was fixed artificially in plmn term. Anyways I don't want to go into that debate for the 100th x.

CPEC is progressing well and is going forward the way it should have. Its just lacks behind in terms of government funded political publicity campaigns/advertisement every 5minutes on particular loyal channels. God that awful politically planned imported coal project all the way up in Punjab was like watching incompetence of epic proportions advertised every 5 minutes.

Bro stop with the no substance repetitive posting, I have seen some of your intellectual posts which are very good.

 

[Zibago]

Definitely PML-N had a much sound economic policy compared to the PTI Government.

I feel the current Government is tracking backwards, i.e. hopelessly insisting on diversification of economics and trade and not sticking with the Look East Policy.

The West is not interested in Pakistan for trade and economics as long as Pakistan refuses to make China's it's enemy and allows itself to be used by the West to stymie Chinese trade growth in South Asia and Central Asia.

It's that simple, it's not rocket science.

The previous Government adopted CPEC with both arms, no questions asked and did not allow any questioning and did very very well in just 2-3 years. However, the current Government has turned CPEC into a controversy to the extent that China is now officially lecturing Pakistani Government on the safety of their citizens in Pakistan.

How and why this level of incompetence has been allowed to mushroom so quickly in just two-years?

The nominal GDP of Pakistan was around $315 billion in 2018 and it has been systemetically set back to $264 billion in 2020 when it should've grown to at least $330 billion - $350 billion by now.

The biggest trade market for Pakistani markets are EU,Gulf states and North America

 

[hydrabadi_arab]

Rebasing will put more pressure on incompetent and corrupt FBR. GDP to tax ratio will be even more low.

Imran Khan need to create new tax authority on modern lines. 95% of fancy restaurants, shops who target 20% of Pak population dont pay sales tax. They get away with paying small amount to tax officials.