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Rebasing GDP

The process of rebasing the Gross Domestic Product (GDP) entails the replacement of an older base year with a more recent base year to keep up with price changes.

The National Accounts Committee (NAC) approved the rebasing of GDP from 2005-06 to 2015-16, resulting in an increase in the growth rate from 3.94 percent to 5.4 percent, and an expansion in the size of the economy from $296 billion to $346.76 billion. The PTI-led government claimed it as a landmarked achievement and the prime minister congratulated his team and the nation. However, economists and policymakers argue that the traditional gauge of economic growth and GDP only reflects the size of a country’s economy and not its welfare or standard of living of the masses.

GDP is a flawed indicator of wellbeing since it only accounts for the value of goods and services purchased and sold in marketplaces. The prime challenge is to account for non-market aspects such as the value of leisure, level of health and education, as well as undesirable outcomes of economic activity such as environmental degradation and income inequality. Sustainable development is a multi-faceted concept that incorporates not only economic but also social, environmental, and emotional aspects.

The inherent flaws in using GDP as a measure of development have spurred the creation of alternative indicators. The 2021 Social Progress Index (SPI), is composed of 12 components and gives a comprehensive, transparent, outcome-based measure of a country’s well-being that is not influenced by economic factors. The index ranks 168 countries on social progress and generates a total score for these countries based on health, safety, education, technology, rights, and other factors. Although there is a proven correlation between economic development and social progression, the linkage is not always persistent. Especially in middle- and lower-income countries, a country’s income group does not always correlate to its degree of social progress.

Pakistan is now ranked 35th in the world as a result of GDP adjustments, yet it is ranked 143rd among 183 countries in terms of social progress. Pakistan’s social progress poses serious challenges across all 12 dimensions, with particularly low rank – environmental quality (156), foundations of wellbeing (155), health and wellness (153), inclusiveness (151), and opportunity (143).

Observing trends in social progress overtime is required to determine the rate at which social advancement responds to changes in economic performance. The country’s poor social progress performance indicates that it lacks the capability to support its citizens’ basic requirements, set up the basic structure that enables individuals and communities to improve and preserve their wellbeing and create an environment for all people to excel.

GDP measures expenditures for pollution prevention, health, and education, but not actual levels of environmental cleanliness, health, or education. It contains healthcare expenses, but does not reflect whether life expectancy or infant mortality have improved or declined. Similarly, it measures educational expenses but does not specifically report the number of individuals who can read, write, or do basic math. GDP also overlooks the wealth distribution in the population, that’s becoming highly important in today’s society. Widening inequality is leading to a rise in societal resentment and antagonism.

In light of the foregoing facts, the government must strive towards a more unprejudiced and equitable society that is economically prosperous and provides residents with a purposeful quality of life. The sole real value of the rebasing exercise is to provide policymakers with up-to-date data for informed economic and investment decisions. However, these figures should not conceal the fact that more efforts are needed to strengthen our economy and address the structural challenges that afflict it.

The writer is an assistant professor at Abdul Wali Khan University, Mardan. He can be reached at: kamal@awkum.edu.pk

Dr Muhammad Abdul Kamal, "Rebasing GDP," The News. 2022-02-07.
Keywords: Economics , Economic growth , Economic activity , Economic development , Investment , Deficit , Economists , Pakistan , GDP , SPI , PTI