Pakistan's Official GDP Figures Ignore Fast Growing Sectors

[RiazHaq]

Haq's Musings: State Bank: Pakistan's Actual GDP Higher Than Official Figures Show

"In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM."State Bank of Pakistan Annual Report 2014Economists have long argued that Pakistan's official GDP figures significantly understate real economic activity in terms of both production and consumption.


M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE), explored several published different approaches forsizing Pakistan's underground economyand settled on a combination of PSLM (Pakistan Social and Living Standards Measurement) consumption data and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08".
And now the State Bank of Pakistan has focused on the production side of the economy in its annual report for Fiscal Year 2014. The nation's central bankers have singled out the economic activity large scale manufacturing sector as its focus. They say that the existing LSM (Large Scale Manufacturing) index was based on Census of Manufacturing Industries (CMI) that was conducted in 2006 which included only those sectors which had significant value addition to Gross Domestic Product (GDP) at the time of census.
In the years since 2006 CMI (Census of Manufacturing Industries) census, Pakistan has seen a significant expansion of its middle class along with rapidly growing consumer demand in sectors such as processed foods and fast-moving-consumer goods (FMCG). It's one of several major new sectors whose growth is not reflected in the official GDP figures.


Pakistan's Processed Foods and FMCG Sector Source: BMA Capital
According to a report by analysts at Pakistan's Topline Securities that examined 25 consumer firms in various sectors, the 2012 sales of the FMCG firms increased by 17% to Rs. 334 billion while profits grew by 40% to Rs. 24 billion. In the five years between 2008 and 2012, sales of these companies showed a compounded average growth rate (CAGR) of 18%, while profits grew at a CAGR of 20%.
Engro Foods, a star performer in the sector, reported 191% increase in profit in 2012 alone, led by the dairy and beverages segment. Other players such as Nestle, Proctor & Gamble and Unilever, have also seen explosive growth with many new plants in production to meet demand. The growth in this sector is not reflected in the LSM component of GDP.
The SBP report further explained that the LSM data was not being reported in Pakistan in accordance with the International Standard Industrial Classification (ISIC) of United Nations Statistics Division’s defined 22 broad categories of manufacturing. The reporting of LSM is limited to only 15 sectors identified by the ISIC while data pertaining to manufactures of apparels, publishing, printing products and recorded media, fabricated metal products (except machinery and equipment), office and accounting machinery and computers, medical precision and optical instruments and recycling of metal and non-metal waste scrap, is not included as part of Pakistan’s LSM. Pakistan has changed a lot since 2006 in terms of economy and demographics. The World Bank moved Pakistan from a low-income to middle-income country in 2007. Pakistan is much more urbanized and more middle class now than it was in 2006. Pakistan's large scale manufacturing (LSM) sector has changed to respond to meet the rising new product demands of the country's growing middle class consumers. Its time for Pakistan Bureau of Statistics (PBS) to conduct a new manufacturing census and Pakistan Census Bureau to do a population census to paint a more accurate picture of the country's demographics and economy now.
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Haq's Musings: State Bank: Pakistan's Actual GDP Higher Than Official Figures Show

 

[definitelynotIndian]

how much of GDP is unreported? My guess is it couldn't be more than 10%

 

[ito]

33% stronger: A Pakistan without terrorism - Blogs - DAWN.COM

A nice read

 

[Kabira]

how much of GDP is unreported? My guess is it couldn't be more than 10%

50% at least.

 

[farhan_9909]

Pakistan GDP nominal is no less than 400Billion dollars today,but i will wait for the official change in base year.



BBC News - Nigeria becomes Africa's biggest economy

 

[Roybot]

Pakistan GDP nominal is no less than 400Billion dollars today,but i will wait for the official change in base year.



BBC News - Nigeria becomes Africa's biggest economy

Nigeria hadn't rebased its economy since 1990!!! Pakistan rebased its economy in 2013 right., from 1999-2005/6? And the increased the gdp by around 5%. iirc.

 

[farhan_9909]

Nigeria hadn't rebased its economy since 1990!!! Pakistan rebased its economy in 2013 right., from 1999-2005/6? And the increased the gdp by around 5%. iirc.

The Rebasing in 2013 was approved by the caretaker govt but didn't took place,instead few months later Ishaq dar confirmed that the govt will rebase it in the FY 2014-15.Last time musharaf approved the base year to be changed from 1991-12 to 2000. in 2005-06.

Now this time,we are expecting the Base year to be changed to 2010

====================

ISLAMABAD, Dec 11 (APP): Federal Minister for Finance, Economic Affairs Senator Mohammad Ishaq Dar Wednesday said government had decided to change the base year for national accounts after every ten years, and the next re-basing would be held in the financial year 2015-16.Highlighting the change of base years from time to time, the Minister said that the base year for the national account was changed in financial year 1980-81, then in the year 1999-2000 and the last base year was changed in the year 2005-06.He stated this while addressing a press conference here after presiding over the meeting of the Board of Directors of Pakistan Bureau of Statistics (PBS).

Associated Press Of Pakistan ( Pakistan's Premier NEWS Agency ) - Base year for national accounts to change every 10 years: Dar

 

[ito]

Pakistan GDP nominal is no less than 400Billion dollars today,but i will wait for the official change in base year.



BBC News - Nigeria becomes Africa's biggest economy

Why do you keep on harping on change in base year?

From the article you quoted, I found this

And Nigerian financial analyst Bismarck Rewane called the revisions "a vanity".He added: "The Nigerian population is not better off tomorrow because of that announcement. It doesn't put more money in the bank, more food in their stomach. It changes nothing."

 

[farhan_9909]

Nigeria hadn't rebased its economy since 1990!!! Pakistan rebased its economy in 2013 right., from 1999-2005/6? And the increased the gdp by around 5%. iirc.

Well Under Musharaf,the Base year was changed in 2005-06 year not changed to 2005-06.

Today the Base year for Pakistan GDP is 1999-2000 and now will either be changed to 2005-06 or 2010

Why do you keep on harping on change in base year?

From the article you quoted, I found this

And Nigerian financial analyst Bismarck Rewane called the revisions "a vanity".He added: "The Nigerian population is not better off tomorrow because of that announcement. It doesn't put more money in the bank, more food in their stomach. It changes nothing."

ofcourse but atleast we will have our real GDP numbers and even per capita income.

Until recently South africia was the biggest GDP of Africa but now nigeria,Nigeria had a per capita less than india but today they have a higher per capita than india.

Nigeria was seen as a Economy of 250Billion dollars but now they are half a trillion and considering part of g20.

 

[ito]

Well Under Musharaf,the Base year was changed in 2005-06 year not changed to 2005-06.

Today the Base year for Pakistan GDP is 1999-2000 and now will either be changed to 2005-06 or 2010



ofcourse but atleast we will have our real GDP numbers and even per capita income.

Until recently South africia was the biggest GDP of Africa but now nigeria,Nigeria had a per capita less than india but today they have a higher per capita than india.

Nigeria was seen as a Economy of 250Billion dollars but now they are half a trillion and considering part of g20.

Here by 'rebasing' in Nigeria is not changing the base year, but including previously uncounted industries like telecoms, information technology, music, online sales, airlines, and film production.

As far as I know rebasing the year, as you are thinking, will not have dramatic effect on the overall GDP figure.

 

[farhan_9909]

Here by 'rebasing' in Nigeria is not changing the base year, but including previously uncounted industries like telecoms, information technology, music, online sales, airlines, and film production.

As far as I know rebasing the year, as you are thinking, will not have dramatic effect on the overall GDP figure.

It does,the IMF oct report mention Nigeria 2014 GDP as 594 Billion dollars

Pakistan: Economy | Asian Development Bank

As i said earlier,our GDP from present 254Billion dollars will atleast jump to 380-400Billion dollars once we change our base year,But if we change our base year to 2010-12 than i am expecting it to be atleast 450Billion dollars
============

Even Bangladesh GDP got an increase from 115Billion dollars to 185Billion dollars with the change in base year or about 60% Increase.

India GDP is the most well documented GDP in South asia and use 2010 as base year

 

[RiazHaq]

From Wall Street Journal: India Economists’ Embarrassing Confession: They Don’t Know What GDP Is

India’s radically revised gross domestic product data have apparently left economists dazed and confused because they are uncharacteristically silent about what growth was last quarter.

India is scheduled to announce GDP figures for the quarter ended Dec. 31on Monday but instead of the regular rush of forecasts, economists seem to have created a cartel of silence, choosing not to make predictions using India’s new methodology.

Last week India surprised all the experts by recalculating GDP growth for the fiscal year ended March. Using a new calculation method, India’s economy expanded 6.9% that year, well above the 4.7% growth the country had announced earlier.

“The revision was massive,” said Siddhartha Sanyal, India economist at Barclays. “We don’t know what the GDP was in the previous quarter, so how do we estimate what is going to happen?”

The change happened because the government brought forward the base year used in GDP calculations by seven years to fiscal 2012. It also switched from using production costs to market prices.

While the headline growth figure shot up with the new calculations, the absolute GDP figure was basically the same as it was before, making it hard for economists to figure out exactly where the new-found growth came from. Meanwhile, the government didn’t give the revised quarterly data or new calculations for this year.

“We are completely blind at the moment,” said Saugata Bhattacharya, chief economist at Axis Bank.

While the new numbers suggest that last year the economy was rebounding strongly, some economists are still skeptical. Most other indicators that year suggested growth was sputtering, they said.

“I am not convinced that there is (such) good news,” said Glenn Levine, an economist at Moody’s Analytics. “If it’s true that the economy is growing close to 7%, then that suggests there isn’t much slack in the economy.”

That’s something economists are finding hard to digest given other indicators such as industrial production have pointed to weakness.

With a lot of questions about the new data still remaining unanswered, economists are only estimating growth for last quarter based on the old method even though the government won’t be announcing those numbers anymore.

Forecasts of eight economists surveyed by The Wall Street Journal using the now-outdated method range between 5.0% and 5.5%, compared with the 5.3% expansion in the September quarter.

While few will venture a guess on what numbers will be announced Monday, “the broader picture is that the economy is improving,” said Axis Bank’s Mr. Bhattacharya.

India Economists’ Embarrassing Confession: They Don’t Know What GDP Is - India Real Time - WSJ

 

[RiazHaq]

India’s “new and improved” GDP statistics are asking investors to suspend their disbelief. Revised data suggests that growth zoomed in the year to last March, just as the country tightened fiscal and monetary policies to tame inflation, narrow the current account deficit and prevent a currency crisis. Such a thing has not happened in any major economy in at least three decades.

The new calculations, released on Jan. 30, have moved the measurement of national income closer to international norms. But in doing so, India’s official statisticians have produced a puzzling new version of history: the old numbers put the expansion in output in fiscal 2014 at a pedestrian 4.7 percent. Under the new method, growth that year accelerated to 6.9 percent.

The original number was more realistic, and not just because a second year of sub-5 percent growth played a role in helping opposition leader Narendra Modi become prime minister with a landslide election victory.

In the first quarter of that fiscal year the U.S. Federal Reserve hinted at tapering its quantitative easing programme. The rupee collapsed as investors baulked at financing large external deficits in emerging markets. India had to raise interest rates, restrict gold imports and curb budgetary excesses. Though a cheaper currency helped boost exports somewhat, oil prices were still high. The massive fall in imports couldn’t have taken place without domestic demand taking a hit.

By the end of the fiscal year, India’s dependence on foreign capital inflows had dropped by 3 percentage points of GDP. The amended statistics show the same picture. But this lesson in self-reliance now appears to have been puzzlingly painless. The new calculations show growth accelerating by 1.8 percentage points, from a revised 5.1 percent in fiscal 2013.

That conclusion stretches credulity. No large economy has pulled off such a big improvement in its external balance at the same time as such a handsome pickup in output, according to a Breakingviews analysis of 189 nations over 33 years.

Indian officials will most likely have to revise their conclusions. For now, though, investors will miss the old data. For all its faults, it was a more reliable compass. India’s posh new GDP statistics look too good to be true.

India’s “improved” GDP statistics strain credulity

 

[RiazHaq]

NEW DELHI—India’s economy is expected to grow at 7.4% in the current fiscal year, a growth rate that rivals China’s, reflecting a strengthening recovery but also a recent radical revision in the way the country calculates its gross domestic product.

The Indian statistics ministry was careful Monday to play down any notion of a horserace with Beijing. “There is no comparison,” said Ashish Kumar, director general of the Central Statistics Office, since China’s economy is several times larger than India’s. “We are not here in a beauty contest.”

ENLARGE
An employee cuts sheet metal on a bandsaw inside an Ishwar Engineering Co. factory in Mumbai on Feb. 7. PHOTO: BLOOMBERG NEWS
If India can sustainably boost its growth rate to a level outpacing that of its northern neighbor and strategic rival, it would mark a comeback for the South Asian nation, whose economy had until recently appeared to have lost its shine amid corruption scandals and gaping trade and budget deficits.

It would also provide a major political boost to the government of Prime Minister Narendra Modi, who won a landslide electoral victory last year after pledging to revive the economy and drive development so India could catch up with its richer neighbors in East Asia. For the final three months of 2014, the third quarter of India’s fiscal year, gross domestic product grew 7.5%, the statistics ministry said, buoyed by accelerated growth in government spending and financial services.

But the country’s new growth figures—and the revised calculations that underpin them—have provoked confusion and jubilation in roughly equal measure.

Shubhada Rao, chief economist at Mumbai-based Yes Bank , said the robust revived data, considered alongside other indicators of continued frailty, “do not add up in terms of the extent of improvement” in GDP.

Late last month, the statistics ministry said it was updating the base year used as the reference point for measuring price changes, as well as incorporating newer, more-comprehensive data into its GDP calculations, which aim to measure the country’s total economic output.

The ministry also shifted its focus to GDP computed at market price, not at factor cost, as its main indicator of economic expansion. Market-price GDP gauges activity by adding up consumers’ and firms’ spending, whereas factor-cost GDP tabulates producers’ costs.

The first growth estimates produced using the new methodology showed growth in the previous fiscal year, which ended last March, well above what was originally announced: 6.9% instead of 4.7%. The size of the economy, however, was relatively unchanged.

That revision seemed difficult to square with the events of that year, in which the threat of tighter monetary policy by the U.S. Federal Reserve roiled emerging markets and provoked emergency intervention by India’s central bank.

Monday’s data included bumped-up estimates of growth for the current fiscal year as well. Growth in the three months that ended in September was revised to 8.2% from the original estimate of 5.3%. And in the quarter before that, the official growth rate was changed to 6.5% from 5.7%, indicating substantial acceleration between those two quarters instead of a slight slowdown as previously estimated.

The latest figures, which describe the economy’s performance since Prime Minister Modi took office last spring, also seem much stronger than what other data imply. Mr. Modi has taken some steps to improve the business environment and streamline bureaucratic procedures. Indian companies announced $64 billion in new investment projects in the fourth quarter of 2014, by one estimate—the highest level in four years.

But they don’t appear to be putting big money on the table yet. Exports in December shrank 3.8% in dollar terms from a year earlier.

Financial constraints are a major reason investment hasn’t picked up. Corporations are burdened with debt and banks are reluctant to lend. Finance officials have said the government budget for the coming fiscal year, which will be unveiled at the end of this month, will likely include substantial investments in railways, roads and housing to compensate for weak investment by private firms.

Such indications of subdued activity have vexed economists trying to understand the new, peppier GDP figures. “We are still trying to connect the dots,” said Dharmakirti Joshi, chief economist at the Mumbai-based rating agency Crisil. He said that for him, the main difficulty for forecasting India’s future growth is that different indicators now paint divergent pictures of manufacturing activity.

For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. The new GDP data, meanwhile, show a 5.3% jump in manufacturing for that year. “There’s a big disconnect,” Mr. Joshi said.

Vidya Mahambare, an economics professor at the Great Lakes Institute of Management in Chennai, suspects India’s growth figures for the first decade of the 2000s will eventually see big revisions as well. Calculated using the new parameters, economic expansion during the fat years might have maxed out at 10% or even 11% instead of 9%, Ms. Mahambare said. “Whatever we thought about potential growth and business cycles—everything changes.”

For now, though, Mr. Modi’s government is spurring optimism that deep, structural obstacles to economic growth are gradually being removed. “Things are so clogged up throughout, whether you’re talking about infrastructure projects being stalled, permissions not coming in, clearances not coming in,” said Satish Reddy, chairman ofDr. Reddy’s Laboratories Ltd. , a Hyderabad-based pharmaceutical giant.

He counseled patience. “Everybody is bullish about India. Everybody has the confidence. But it just needs some time to play out and really translate into numbers,” Mr. Reddy said.

—Rajesh Roy contributed to this article.


India Projects 7.4% Growth Using New GDP Calculation - WSJ

 

[AUz]

@RiazHaq @farhan_9909

Any updates in this regard?

When can we expect updated information on the actual size and scope of today's Pakistani economy?

The government should make this an outmost priority. Effective, credible, wholesome, and accurate documentation of Pakistan's economy, demographics, and economic activity happening in the nation is critical for future development, policy making, investment, taxation, and what not.