In real terms with the current growth rate of 3.5 percent, the economy actually shrunk 3.5 per cent this year for he number of job seekers in Pakistan increases by about seven per cent every year. PHOTO: FILE
What is worse, the already dismal rate of growth seems to be tapering off, which is perhaps because of the extremely irresponsible fiscal behaviour of the previous government in its last year in office, which was obviously election year.
And just as the government did with inflation, making changes in the methodology to ensure that inflation numbers clock in lower, it did with growth as well. The base year was changed from 1999 to 2005 and this basically ensured that the GDP growth rate registered at 3.5 per cent, which otherwise would have been about 3.2 per cent. It does not really make much of a difference though since 3.5 per cent is still worryingly low and a deep cause for concern. One also has to realise that growth rate is relative and has to be pegged with something or based against another value for one to get an idea of how good or bad it actually is.
It’s the same for economic growth. There is a very easy way to assess if the economy is growing in real terms or not. And that is to see if the economy is growing faster than the pace of new job seekers who enter the market every year. The number of job seekers in Pakistan increases by about seven per cent every year. So, in real terms, with the current growth rate of 3.5 percent, the economy actually shrunk 3.5 per cent this year. There has been no real growth at all.
And it seems there won’t be any in the medium term. Based on reports coming in, it seems we are going to miss our tax collection target by a wide margin and our wheat production target by over a million tonnes. Both are significant. Low tax collection will cause the deficit to swell, and a fall in wheat production will push up food prices, and inflation. The domino effect will be hard to tackle.
Published in The Express Tribune, May 9th, 2013.
COMMENTS (10)
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@ptisupporter:
This is "living in denial" syndrom that affects most Pakistanis ........ Imran Khan does not have a magic wand, nor does anyone else ........ you reap what you sow , there is no escape from this reality ......
What Pakistan is suffering from is "Stagflation".The tri effect of rising inflation,declining GDP growth rate & increasing unemployment.The GDP has shrunk but not in a way that you stated.
http://en.wikipedia.org/wiki/Stagflation
FBR is sitting on refunds of over Rs 100 billion and not issuing them just to meet the tax collection target This is one of the main causes of slow down in economy as working capital has been sucked out by FBR.
This is a strange statement - even for lay-person like me. There is no simple plus/minus formula between growth in jobless people and growth in GDP. strong growth in a labour-intensive sector will see more people getting jobs as compared to strong growth in capital intensive sector. The sizes of the sectors and their contribution to the GDP will determine the GDP growth! But on the whole, as an approximation, strong growth in GDP is most likely to create more employment opportunities. But then many countries ( eg India) have also experienced the phenomenon of "jobless growth".
@Roni: @np: I agree with both of you, thanks. To all the technocrats I have a simple question. Show me a stable country with the economy of the size of Pakistan and has such a huge army and defense budget with all expensive war toys and yet it can make progress? In fact no country can even survive with this high non productive expenses. Even USSR imploded when they continue arms race with a much bigger economy the US. Regards, M
" The number of job seekers in Pakistan increases by about seven per cent every year. So, in real terms, with the current growth rate of 3.5 percent, the economy actually shrunk 3.5 per cent this year."
Bad math and bad macroeconomics.
The population in Pakistan is growing by around 2% so per capita GDP increased by around 1.5% NOT shrunk by 3.5%
Secondly where are you getting numbers that the job seekers are increasing by 7% each year? Also you have assumed that 1% increase in economy is what is needed to support 1% increase in labour force and hence concluded that 7% growth is needed to support a 7% increase in labour force. Where did you come up with that correlation? It really depends upon what sectors is the economy growing and what the labour elasticity of those sectors is.
@Roni: I have just started to see your posts very recently and invariably they are level headed, balanced and logical. Keep them coming.
While you arrive at a considered conclusion, some of the economics above is questionable.
For one, a government ,such as the PPP running a large fiscal deficit would be inflationary on the one hand, but would actually still cause growth rather than a decline.
Changing the base year for measuring GDP or the various inflation index's is common practice. And yes it does lead to the GDP rising slightly. The US and the UK are conducting a similar exercise in June and July and both will result in a slight increase in their GDP's.
To say there is something wrong in changing the base year perpetuates the accuracy of recording economic data. For example, they were around 1.5 million cell phone connections in 1999, and over a 100 million today. That difference alone would account for an underestimation of the size of the economy.
As for the link between unemployment and the size of GDP, you cannot arrive at the conclusion that the economy has shrunk by looking at the unemployment rate. This would only hold true if the relationship was between inflation and nominal GDP. As 3.5% refers to the real GDP, it already accounts for inflation. Many countries have experienced growth with rising unemployment. Using the phrase "there has been no real growth at all" is wrong.
Just wait and watch how IK will turn the economy in 3 months. Also no terrorism as terrorists will be sitting at the table with IK and listening to our tiger IK.
Shrinking economy but expanding army and WMD and drone programs! We have chosen our priorities. Let us continue eating grass.