Think tank challenges 3.7% growth

An independent think tank has termed the first quarter's economic growth rate of 3.7% a result of "methodological artefacts" and manipulation, observing that growth existed only on papers without any real production expansion.

In a brief, the Economic Policy and Business Development (EPBD) think tank said that various "patterns indicate that the first quarter's economic growth reflects methodological artefacts and import-dependent assembly operations rather than genuine productive capacity expansion". The EPBD board of governors includes at least three partners of the Arif Habib Corp-led consortium, which last month bought a 75% stake in Pakistan International Airlines (PIA). Among the governors are Arif Habib, Gohar Ijaz and Fuwad Mukhtar and its chief executive officer is Ahmad Nawaz Sukhera, a former cabinet secretary.

The National Accounts Committee this week approved a 3.7% economic growth for the July-September quarter of the current fiscal year despite some glaring contradictions. The EPBD is the first entity that has scrutinised the growth data. The think tank noted that in the absence of real economic activity, driven by business growth and vigorous production activity, growth will only be visible in numbers. It's crucial to ensure enabling policies for businesses to operate freely and prioritise private-led investment for real and sustained economic growth, it added.

The report noted that food exports collapsed 25.8% while imports surged 18.8% and yet agriculture and food manufacturing showed a positive growth. It stated that transport imports more than doubled while construction supposedly boomed 21.03%. Cotton production declined and yet textile exports grew through imported synthetic fibres. "Growth exists only on papers," remarked the EPBD think tank.

Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb have welcomed the 3.7% growth rate, terming it a sign of the country moving from a prolonged phase of stabilisation to an accelerating growth period. But EPBD said that despite the reported 3.71% growth, food exports plunged 25.8% while food imports soared 18.8%, which has exposed the fundamental disconnect between domestic statistics and external competitiveness.

It termed the claim of 9.4% industrial growth the result of "deflator manipulation". The report underlined that methodological inflation has masked stagnation, as the electricity sector's 25.46% growth was driven by subsidies surging from Rs20 billion to Rs118 billion and the deflator manipulation, not actual output expansion.

"Livestock's 6.29% growth reflects declining input costs, green fodder production fell 14.4% (and there were) no productivity gains," said the brief. It added that construction boom was fueled by imports, not production. Data shows that construction surged 21% while transport imports more than doubled with bus and truck imports skyrocketing 1,180%. The boom reflects imported equipment consumption, not domestic manufacturing expansion, according to the EPBD.

The report said that cotton production fell 1.2%, cotton ginning declined 12.1% and cotton-based exports dropped approximately 10%, yet textile exports grew 7.3%, driven entirely by finished goods using imported synthetic fibres.

The government reported a manufacturing sector growth of 5.78% alongside machinery imports that rose 13.2%, mobile phone imports, which went up 383.5% and chemical and pharmaceutical exports that fell 21.2%. "Growth reflects assembly operations and consumption, not productive capacity expansion," added the think tank.

The EPBD said that even sector-specific growth rates appear counterintuitive when examined in detail. Agricultural output was expected to remain stagnant or decline due to flood impacts, yet the agriculture sector grew 2.89%.

Important crops' output dipped 0.75% primarily because cotton harvest fell 1.2% and no wheat crop was produced in the first quarter.

The industrial sector growth of 9.4% relied heavily on electricity, gas and water supply, which expanded 25.46% and was driven primarily by subsidies surging from Rs20 billion to Rs118 billion and deflator manipulation rather than actual output increases.

Construction marked 21% growth without a commensurate rise in cement production that increased only 15%.

"Gross value addition (GVA) is calculated as output minus intermediate consumption; when intermediate consumption declines for reasons unrelated to productivity improvements, the GVA mechanically increases even without real output growth," it said. The National Accounts Committee approved a 2.9% growth for the agriculture sector, 9.38% expansion for the industry and 2.35% growth for services.

Pakistan's manufacturing and export sectors are suffering because of high interest rates, hefty taxes, exorbitant energy prices and the lack of consistency in economic policies. Imports during the first half surged 11% but exports plunged nearly 9%.