The provisional estimates for 2022-23 of the GDP by sector and by expenditure have been released recently by the Pakistan Bureau of Statistics (PBS). According to these estimates, the GDP growth rate at factor cost in 2022-23 is 0.29 percent. This comes as a pleasant surprise because there were apprehensions that the growth rate might be significantly negative in light of the large negative impact of the floods, especially on agricultural output, and more recently because the big decline in industrial production caused by large, forced reduction in the imports of raw materials and intermediate inputs.
The sectoral growth rates in 2022-23 of agriculture, industry and services are reported at 1.55 percent, -2.94 percent and 0.86 percent, respectively, thereby yielding the GDP growth rate of 0.29 percent. There is a decline in industrial value-added. However, contrary to expectations, the agricultural sector has exhibited a positive growth despite the colossal damage inflicted by the floods.
The Economic Adviser’s Wing of the Ministry of Finance had earlier published a report on ‘The Cost of the Flood to the Economy’. According to this report, the floods have led to a drop in output of major crops, minor crops, and livestock of 15.4 percent, 15 percent and 2 percent, respectively, leading to an overall sectoral loss of 6.3 percent. Now, we are told that the agricultural sector actually has a positive growth rate of 1.55 percent.
Within the agricultural sector, the PBS estimates are that the sub-sectors of major crops, minor crops and livestock have shown growth rates of negative 3.2 percent, 0.23 percent and 3.78 percent, respectively. Based on data on most major crops in Pakistan obtained from the USDA based on satellite imagery the fall in output of major crops in 2022-23 is as much as 8.41 percent. Clearly, the growth rate of the sub-sector has been greatly exaggerated.
Similarly, the livestock sector is shown as having achieved a relatively high growth rate of 3.78 percent, despite the loss of 726,287 livestock in the floods, according to the FAO. Also, the minor crop sub-sector has been characterised by limited supplies with the resulting rise in prices of as high as 257.3 percent in the case of onions, 41.4 percent in potatoes and 51.3 percent in fruits.
Turning to the industrial sector, the apparent contraction in the sub-sectoral growth rates is that while large-scale manufacturing has contracted by almost 8 percent, small-scale manufacturing has been very buoyant with an increase of over 9 percent. This is highly unlikely given that there is a vertical linkage between the two sectors. For example, production by the automobile sector is down by 42.5 percent. Clearly, the output of small auto parts suppliers would have also been affected.
The electricity and gas sector has also been shown to be achieving a high growth rate of over 6 percent. Here again, the issue is that the demand for electricity may have been negatively impacted by the fall in activity in large-scale manufacturing and retail trade. Recent months have, in fact, witnessed a double-digit decline in the quantum of electricity generated.
The PBS estimates are that the construction sector is down by 5.53 percent. However, the decline in product and/or import of construction inputs is much larger at over 13 percent in the case of cement production and 36 percent in imports of iron and steel products.
The other big surprise is the apparent buoyancy in the transport sector of 4.7 percent growth with falling trade volumes and low production growth. In fact, according to the OCAC, the consumption of petroleum products, especially of HSD oil, has fallen in the transport sector by over 8 percent.
The real estate sector has also been hit by the floods. 218,000 houses have been destroyed and 452,000 damaged. Yet, PBS shows no change in the growth rate of the sector. Similarly, an unusual buoyancy has been shown in the education and health sectors, with growth rates of 10.4 percent and 8.5 percent, respectively. The main public providers of these services are the provincial governments. The total expenditure by these governments has fallen in real terms by over 9 percent in the first nine months of 2022-23.
There are also some serious problems with regard to estimates of the GDP by expenditure. The largest component of expenditure is household consumption expenditure, with a share of over 87 percent in the GDP by expenditure. It has apparently increased by almost 3 percent. How can this happen at a time when real per capita income has fallen and there has been an unprecedented upsurge in consumer prices of up to 35 percent from January to March 2022-23?
The overall assessment is that the GDP growth rate for 2022-23 has been significantly exaggerated by the PBS. It has minimized the impact of floods. This is contrary to the claims at the time of the Paris Conference that the cost to the economy of the floods was as much as $30 billion. The result will be a loss of credibility with donors who pledged over $10 billion at the Conference.
The time has come for an assessment of the technical capacity of the PBS. The role of the Statistical Council and the National Income Accounts Committee needs to be made less vulnerable to external pressures to present a better picture of the economy than is really the case.
There is need to ensure that in the transition from the preliminary estimates to revised estimates of the GDP in 2022-23 next year, an effort is made to reconcile the above type of inconsistencies. Based on the estimates by the Economic Adviser’s Wing of the Ministry of Finance and our earlier estimates, it is more likely that the economy of Pakistan contracted by over 3 percent in 2022-23.Dr Hafiz A Pasha, "Growth rate: PBS under the spotlight," Business recorder. 2023-05-30.
Keywords: Economics , Economics challenges , Growth rate , Industrial sector , Pakistan , GDP , 2022-23