State of the economy
This article deals with the current state of economic recovery. Pakistan’s economy has seriously been damaged by the previous regime during 2008-09 to 2012-13. Apart from growth and employment, almost all key macroeconomic indicators worsened during the previous regime. By the end of its tenure, the country was on the verge of external payment default and had no option but to seek IMF assistance.
Given the state of the economy that evolved over the last five years, no one was expecting a miracle to happen in a short period of time. In the desire to show massive improvements all around in a short period of time, the government indulged in massive manipulation of statistics.
Bent upon showing a growth number of more than four per cent in the year 2013-14, the government played havoc with national account statistics. Firstly, for two years (2011-12) the old real GDP growth number (4.4 per cent) was revised downwards to 3.8 per cent to make the case that the real GDP growth of 4.1 per cent in 2013-14 was the highest in the last six years. Secondly, the large-scale manufacturing number for July-March 2013-14 was available at the time of the National Accounts Committee meeting in May 2014 but the government preferred to use the July-February 2013-14 number for obvious reasons because this was higher (5.3 per cent) than the July-March (4.6 per cent) number. Thirdly, the extraordinary growth in construction inflated real GDP growth by 0.3 percentage points alone. Should any sensible economist believe these numbers? Dr Hafiz Pasha, a noted economist, has already dubbed investment numbers “rubbish”.
It is for these reasons that no professional economist from within or outside the country accepted the growth number of 4.1 per cent for the year.
The statistics pertaining to large-scale manufacturing (LSM) for the complete year (2013-14) is now available. A careful review of these numbers speaks volumes about our supposed economic revival and the controversial economic growth number. The LSM grew at an average rate of 4.3 per cent during the first two months (July-August) of the last fiscal year (2013-14). Growth suddenly accelerated to 11.4 per cent in September and then fell sharply to an average of 3.7 per cent during October-November only to accelerate once again to 11.3 per cent in December. My view has been that the LSM numbers for September and December were cooked up. I expressed my views through a series of articles and also at the Economic Advisory Council meeting headed by the finance minister.
No one paid any attention. The LSM growth was continuously on a decelerating path with January-June (second half of the year) growth slowing to an average of 1.7 per cent. Excluding the cooked up numbers for September and December, the LSM has registered a growth of 2.5 per cent in 2013-14 — far lower than 4.1 per cent in the previous year (2012-13). The decelerating trend in LSM continued in July 2014 (the first month of the current fiscal year) when it exhibited a growth of only 1.1 per cent. The bottom line is that the country’s industrial activity, instead of witnessing revival, is in fact, experiencing a sharp downturn.
Holding other things constant, if we simply adjust the LSM number, incorporate its implication for value-added in wholesale and retail trade and adjust the inflated number of value added in construction, the real GDP growth for the year 2013-14 hovers around 3.3-3.5 per cent. This number is more or less in line with the average growth rate for the last six years. The recent numbers clearly suggest that Pakistan’s economy is further slowing down with serious consequences for poverty and unemployment. The initial euphoria of the new government appears to have lost momentum within a few months of it being at the helm of affairs.
Published in The Express Tribune, October 10th, 2014.
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COMMENTS (11)
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@ Jameel
Not true at all ! Pricing was on a self determining formula based upon oil prices.What funds were received or redirected towards the subsidy you allege ? Please substantiate
Facts remain as such please do not misguide people by your bias and agenda
Where is Fiscal money heading? Numbers don't lie so money is heading somewhere. For example, the M.A. Jinnah Road is in shambles, storm water drain on I.I. Chundrigar Road is filled with waste filth, Nishtar Road looks like a clogged artery, and the Queens Road leading to Jinnah Bridge is partial slum on south side. All these Roads were built under British Empire. Karachi, the Mega City is being runned down by every successive governments. There was some improvement during President Ayub Khan times as well as new flyover construction during Mussharraf. These are the result of state of negligence by both Provincial and Federal authorities. Karachi is the highest Tax City yet there is little money coming back for urban construction to meet its Sprawling. We cannot squander away our National and Provincial Wealth. There is Excessive Taxation therefore Excess Money is not being utilized for construction of Karachi, the World Mega City. These Roads present decaying and not development. Pakistan Steel is now a Smokestack which is natural and should be done away with to give way to private enterprises. Lets not Kill Entrepreneurship and Entrepreneurs by Excessive Taxation which is also playing in Killing of Pakistan Economy. We need to Reduce Taxes, Penalising Businesses, and Excessive Audits by many government departments. Reduce Corruption and Excessive Compliances.
@excalibur: You forget that he kept subsidizing oil prices with borrowed money. In 2007-08 oil prices were at their peak and a lot of dollars were wasted on subsidies. This is what led to the balance of payments crisis then and we haven't recovered from that to this day.
@ oberver and muslim leaguer
Ranting at Musharraf's successful leadership with your bias and prejudice cannot change the facts Both Macro and micro economic indicators achieved on his watch were the best and remain so. Dollar/Rupee exchange parity is just one bottom line indicator to prove this success
Reg USAID claimed at $ 10 BN ( half of which was pure reimbursement of services provided to ISAF operations. No purchases of military hardware was involved as US/Allies brought along that with them to be deployed ) during his time is all accounted for.
.NDMA was structured by Musharraf and it did a splendid job .No funds were either siphoned of or misused. No corruption or bribe at all could be pointed out even after 7 years now. Progress attained has been squandered first by Zardari and now Nawaz.
Please speak with facts not with the mindset of Hub e Ali and Bughz e Muawiya
@excalibur:
"Well truth must be told , under Musharraf the economy was doing very well indeed. and that is a fact"
No, that is not the truth. Musharraf and Shakat Aziz used smoke and mirrors and cooked books to make the economy look artificially rosy. In fact, Musharraf's bad economic management put the economy in a deep hole for the next 10+ years.
See my previous post for more details.
This economic critic continues to criticize all the good steps of the elected government but fails to defend the fact that Pakistan has suffered the most during Dictator Musharraf's tenure. The war on terror in which Mush jumped immediately to get his dictatorship legitimized has cost us more than US$ 100 Billion and more than 60,000 Pakistanis have lost their lives. He tried to flourish on US Assistance without investing in any mega project. As a result, the country was thrown into chronic shortfall of electricity and gas. He implemented Rental Power Policy in 2006 that opened the floodgate of corruption in rental power plants without adding much to the power generation. He did not factor-in the escalating oil prices in the national budget of FY08, which caused a huge gap of more than PKR 500 Billion in the federal budget. He kept the PKR artificially high for quite some time which caused a huge dip of 30% in 2008 in the value of Pakistani Ruppee (from PKR 60 to PKR 86 against USD).
@Farrukh:
"We know exactly where you are coming from.The last time you said anything positive was in Musharraf’s days."
I was thinking the same. The current economic problems are not all due to any bad management by Zardari or Nawaz.
The stage for the downfall was set by Musharraf who along with Shaukat Aziz cooked the books to make the economy rosy. American, Nato and Saudi free money was pouring in along with IMF/WB loans, but Mush used it all for buying fighter jets, radars, nuclear bomb material, missiles, submarines etc. He even spent the $3B aid received for 2005 earthquake victims to buy military equipment. He allowed massive import of consumer goods that falsely propped up GDP. No investments were made in projects that would generate jobs and add to the GDP. Such bad financial mismanagement takes at least 15 years to recover from.
@ Farrukh
Well truth must be told , under Musharraf the economy was doing very well indeed. and that is a fact The author is not the government and is only being honest and candid. Why should he provide a solution ? Is it not enough that he is exposing the bogus mandate and its incompetence Ishaq dar is known for cooking up figures and Musharraf had to pay a heavy fine because Dar lied to the IMF in writing
This is nothing new nor surprising.
This can be compared to the different trajectories taken by North Korea and South Korea.
One is an American ally, another Chinese. One is poor, other is not.
Whenever Pakistan has been in the good books of the Americans it has grown well, investment was always forthcoming, there was never any question of isolation.
Now, that Pakistan, like North Korea, has taken on a confrontationist policy towards US and friendly relations with China, Pakistan too is facing the same problems as North Korea.
India on the other hand, like South Korea, is growing by leaps and bounds. Current GDP rate is 5.4%, next year it is projected to grow at 6.5%, almost the double that of Pakistan(with a population much larger).
Pakistan is the next North Korea.
We know exactly where you are coming from.The last time you said anything positive was in Musharraf's days. If you have solutions to offer for our intrinsically weak economy, say so in your articles rather than constantly voicing doom and gloom.