Economic data, growth rate

Authentic data are sine qua non for sound economic policy planning and management. Without accurate data, policy making would be erroneous and lopsided. That is why developed nations spend a lot of time, money and energy to put in place credible statistical organisations that function without political interference and on purely professional lines.

For the next fiscal year starting July 1, the government has set a GDP growth estimate of 4.5 per cent with an inflation (GDP deflator growth) rate of 8.9 per cent. It has estimated nominal growth GDP at 13.9 per cent, current account deficit at $6.5 billion, nominal exchange rate at Rs87 to a dollar, net foreign income at $6.57 billion and net indirect tax at Rs883 billion.

Nominal GDP has been estimated at Rs16,975 billion. The government expects to achieve 4.5 per cent GDP growth rate for next year with agriculture output growing at 3.8 per cent, manufacturing at 5.6 per cent and services sector at 4.7 per cent.

These estimates are based on assumptions that energy shortages would be managed to help revive production in key sectors. Inflation would likely be 9.5 per cent mainly by pursuing prudent fiscal and monetary policies. Higher growth in agriculture and manufacturing and lower inflationary expectations would keep the inflation within single digit.

The International Monetary Fund disagrees with these projections. It has estimated that the economy would grow at 4.3 per cent of GDP with GDP deflator of 12.5 per cent nominal GDP size of Rs17,319 billion.

Successive governments have been talking about creation of an independent statistics authority but they have not delivered on their promises. Even today, Federal Bureau of Statistics (FBS) continues to function as a subordinate division of the finance ministry. As a result, the FBS has never been able to enjoy credibility and respect such professional organisations aught to have in open and transparent economies. This becomes more difficult when finance ministry has political reasons to show results in order to prove success of its economic policies.

This year, too, the estimates finalised by the National Accounts Committee (NAC) attracted usual suspicions of data manipulation. The suspicion was reinforced by criticism coming from Dr Ashfaque Hassan Khan, who has been member of the NAC and finance ministry’s economic adviser for more than a decade.

The FBS says that a number of problems are faced when economic statistics are used for constructing national accounts. There is a wide range of challenges including lack of uniformity and harmonisation of concepts, definitions and classifications adopted for different surveys and subsequently used in estimation of national accounts (GDP/GNP) that need to be addressed.

Lack of (regular and continuous) training of professionals of national accounts to become familiar with the modern techniques and concepts being adopted in the system also contributes to the problems. There is, therefore, a dire need for timely release of data to all users along with sources and methodology of estimation to improve the public perception about the data reliability.

This year, the NAC amongst others endorsed provisional growth of 4.1 per cent for gross domestic product (GDP) and -0.6 per cent for gross fixed capital formation (GFCF)/investment for 2009-10 but the most interesting thing was revision in last year’s GDP growth to 1.2 per cent from two per cent. It is normal that three types of estimates are made every year. These include provisional estimate for the current year 2009-10, revised for the previous year 2008-09 and final for 2007-08.

Provisional estimates are based on six to nine months annualised data. Sometimes sources provide the projections for the whole year and if they do not provide the projections, FBS has to fill the gaps. In case partial or no data is available, last year’s figures are repeated.

Data providers also supply revised data for the previous year and final figures for the earlier year. If the provisional data is mature enough, the revised and final estimates will vary less otherwise the variation will be large. Hence, each year National Accounts estimates pass through three stages.

The authorities need to improve the status and independence of FBS to ensure its credibility. It is time to make it independent from the ministry of finance and the government to ensure authenticity of the official data.

At the same time, the quality and timeliness of data should be improved by the FBS through capacity building of FBS staff and experts besides the up-gradation of FBS infrastructure. But more importantly, the FBS should have the authority to release macroeconomic numbers on the day NAC approves them along with analysis and estimation methodology and data sources.—Khaleeq Kiani

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/economic-data-growth-rate-760