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1- GWADAR — A CHALLENGE
2- CHINESE INVESTMENT IN THAR
3- CHANGING THE GDP BASE YEAR
4- NEW IRAQI DINAR
5- INVESTMENT IN REAL ESTATE TODAY
6-
FOREIGN AND LOCAL INVESTMENT

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CHANGING THE GDP BASE YEAR

 

It may help in boosting growth rate for the year 2003-04 but also has the potential to adversely impact next year’s growth rate

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By SHABBIR H. KAZMI

Aug 09 - 15, 2004
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The government has announced a change in the GDP base year from 1990-91 to 1999-2000 in an attempt to include certain items that had been excluded from the calculation of GDP in the past. These items had attained significant importance over the last few years. The likely motive for this accounting change seems to be an attempt to boost GDP growth rate beyond 6% for the financial year 2003-04, rather artificially.

During the ongoing financial year Pakistan economy has registered handsome growth. It is expected that against an initial target of 5.3% the country may succeed in achieving above 6% growth. This expectation has been created and fueled by the economic managers. While Pakistan's economic growth continues to look strong, achieving above 6% growth rates needs further analysis.

The economic managers throughout the year have been consistently saying that the country will succeed in achieving above 6% GDP growth rate. The expectation looked reasonable in the backdrop of stronger than expected growth in the manufacturing sector, on target growth in the agricultural sector, high level of domestic private sector credit growth, low interest rates and low inflation. The growth was further boosted by the strong growth in exports and non-oil, non-food imports during the year.

However, the announcement regarding change in the base year regarding change in base year for GDP calculations from 1990-91 to 1999-2000 seems nothing but an attempt to boost the growth rate artificially. The rationale for this change was said to be that some of the items produced in the country were included in the past due to their smaller quantum. However, over the years these have attained significant size. Therefore, in order to get an accurate idea of the country's GDP these items needed to be counted as well.

Generally, the method used to measure GDP is kept consistent over time to ensure comparability with the previous years and to be able to portray true state of affairs. Any change in the methodology of these calculations makes the comparison of growth over the years incomparable. It becomes very difficult to estimate the impact of the change in methodology on the previous years' data and an accurate calculation of growth impossible. Thus this move by the government will make comparing GDP growth recorded this year with the booming growth recorded in the early 1990s impossible.

 

 

The only rationale behind this decision seems to the wish of economic managers to portray that they have been successful in accelerating the GDP growth rate. Saying this, one cannot resist from accepting the fact by taking all the items into account for the calculation of GDP is a good move. However, no one should feel over jubilant. While it may sound good including them for purposes of accuracy, one of the reasons for the high growth recorded in the output of these items has to do with the fact that the growth in these items probably occurred on a very small initial base.

It is necessary to reiterate that no one doubts that Pakistan may succeed in posting above 6% GDP growth rate. Therefore, any attempt to hike the rate artificially will be of no consequence. The economic growth is evident from improving capacity utilization, growing exportable surplus and increasing import of plant and machinery and raw materials.

Saying this, one cannot resist from warning that the change in base year may help in portraying higher GDP growth rate but the next year's growth rate may emerge disappointing. The reason for this apprehension is that Pakistan is expected to face severe water shortage in the next financial year, which has the potential to adversely impact the agriculture output. The performance of two of the large-scale manufacturing sectors — textiles and sugar — that have been recording exceptional growth in the past is directly dependent on water availability.

GDP SIZE

The size of document economy is said to be one-third of undocumented econom, the biggest single reason is that the institutions responsible for collecting the data are not discharging their duty effectively and efficiently. The blame also goes to the business community that fearing the assault by tax collectors they hardly declare the installed capacity and actual output. Unless there is change in the mind set of both the business community and the tax collectors, the economic managers will continue to base their policies on inadequate information and the country will continue to suffer, bad policies can only yield worse results.