ECONOMY

 
1- SHORT-TERM ENERGY OUTLOOK
2-
MIRROR, MIRROR ON THE WALL
 

MIRROR, MIRROR ON THE WALL

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By BAKHTIAR AHMAD
Mar 07 - 13, 2005
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In this study, we present macroeconomic data for the last 45 years (1958-2003) for 10 key indicators. Based on this, we have also devised a simple scoring model to assess the economic performance of various governments over time.

DATA

The selection of indicators used in the study is probably the most controversial part and therefore requires an explanation. It is likely that a different or more comprehensive set of data would produce a different picture than what is presented below. But we doubt if it would be so radically different as to render our conclusions completely void. The quality and scope of data being published has improved a great deal since 1987, but prior to that we are constrained by the availability of reliable sources.

A related problem in handling the data was the choice of using weights. Is budget deficit more or less important than inflation in forming a view about the quality of economic management of a government? Instead of going down this road, we opted for the chicken-route. We opted to displease all sides, and assigned equal weights to all 10 indicators. We trust that we will gain in objectivity what we lose in philosophical correctness.

The third issue was that of context. A government that inherits a mess needs time to work itself out of it. A policy change needs time to take root. Sometimes it may not bear fruit in the government's life time. In fairness, we wrestled with the idea of apportioning blame and as we tried various methods, we realized that personal political biases were framing our responses. One of us is a committed democrat and other is an agnostic cynic. The twain shall not meet; and happily they didn't. We agreed that those who aspire to govern must take credit (and the blame) for their choices. After all, nobody goes in search of these people to come and fix our problems. They take it upon themselves to see the problem and then have the arrogance to presume that they are the most able to put it right. Also a good government that follows a bad one has the mathematical advantage on its side. It is easy to go from a GDP of 10 billion to 20 billion (100% growth) than from 100 billion to 200 billion. So we have ignored the policy lags.

Finally, in a country like ours, it makes no sense to look at, say, the fiscal policy to judge the competence of a government. We ought to look to human development indicators soft economics to make a fairer assessment. The results are summarized in Table 1.

TABLE 1: KEY ECONOMIC INDICATORS 1958 - 2003 BY GOVERNMENT

 

Ruler

Ayub Khan

Yahya Khan

Z A Bhutto

Zia ul Huq

Benazir BhuttoI

Nawaz Sharif I

Benazir Bhutto II

Nawaz Sharif II

Pervaiz Musharaf

Start

1958

1969

1971

1977

1988

1990

1993

1997

1999

End

1969

1971

1977

1988

1990

1993

1997

1999

2003

Yrs in Govt

11

2

6

11

2

3

4

2

4

Govt Budget

Millions - Pak Rupees

Start

-1,117

-2,799

-3,069

-12,580

-42,426

-46,232

-118,999

-189,788

-202,024

Surplus/
Deficit1

% Change in Office

End

-2,799

-3,069

-12,580

-42,426

-46,232

-118,999

-189,788

-202,024

-140,442

 

Full Term

-151%

-10%

-310%

-237%

-9%

-157%

-59%

-6%

30%

 

Annual Average

-14%

-5%

-52%

-22%

-4%

-52%

-15%

-3%

8%

Currency

Pak Rupees per USD

Start

5

5

5

10

19

22

30

44

52

Devaluation2

% Change in Office

End

5

5

10

19

22

30

44

52

57

 

Full Term

0%

0%

-107%

-88%

-17%

-38%

-46%

-18%

-11%

 

Annual Average

0%

0%

-18%

-8%

-9%

-13%

-12%

-9%

-3%

Inflation3

CPI Index

Start

5

6

7

16

35

41

55

86

95

 

% Change in Office

End

6

7

16

35

41

55

86

95

108

 

Full Term

38%

10%

134%

114%

18%

35%

55%

11%

14%

 

Annual Average

3%

5%

22%

10%

9%

12%

14%

5%

4%

Foreign Currency

Millions - US Dollars

Start

165

278

129

449

395

296

1,197

1,195

1,511

Reserves1

% Change in Office

End

278

129

449

395

296

1,197

1,195

1,511

10,941

   

Full Term

68%

-54%

248%

-12%

-25%

304%

0%

26%

624%

   

Annual Average

6%

-27%

41%

-1%

-13%

101%

0%

13%

156%

Tax Revenue1

Millions - Pak Rupees

Start

1,845

6,977

7,342

20,439

119,844

163,825

242,812

384,263

464,372

 

% Change in Office

End

6,977

7,342

20,439

119,844

163,825

242,812

384,263

464,372

701,576

 

Full Term

278%

5%

178%

486%

37%

48%

58%

21%

51%

 

Annual Average

25%

3%

30%

44%

18%

16%

15%

10%

13%

Manufactur-
ing

Index

Start

6

19

22

25

66

72

85

90

103

Production1

% Change in Office

End

19

22

25

66

72

85

90

103

130

 

Full Term

239%

15%

11%

166%

10%

17%

6%

15%

27%

 

Annual Average

22%

8%

2%

15%

5%

6%

1%

7%

7%

Foreign Debt1

Millions - Pak Rupees

Start

6

1,988

1,719

5,153

11,911

19,757

32,184

47,629

110,274

 

% Change in Office

End

1,988

1,719

5,153

11,911

19,757

32,184

47,629

110,274

47,413

 

Full Term

33033%

-14%

200%

131%

66%

63%

48%

132%

-57%

 

Annual Average

3003%

-7%

33%

12%

33%

21%

12%

66%

-14%

Exports Growth1

Millions - Pak Rupees

Start

1,419

1,671

2,225

11,766

81,348

121,345

187,786

359,046

417,322

 

% Change in Office

End

1,671

2,225

11,766

81,348

121,345

187,786

359,046

417,322

688,882

 

Full Term

18%

33%

429%

591%

49%

55%

91%

16%

65%

 

Annual Average

2%

17%

71%

54%

25%

18%

23%

8%

16%

Producer
Price

PPI Index

Start

4

5

6

14

34

40

53

88

96

Index1

% Change in Office

End

5

6

14

34

40

53

88

96

115

 

Full Term

46%

6%

151%

136%

18%

32%

67%

10%

19%

 

Annual Average

4%

3%

25%

12%

9%

11%

17%

5%

5%

Domestic

Millions - Pak Rupees

Start

839

903

1,000

5,201

30,515

26,475

86,815

142,159

91,750

Borrowing1

% Change in Office

End

903

1,000

5,201

30,515

26,475

86,815

142,159

91,750

93,029

 

Full Term

8%

11%

420%

487%

-13%

228%

64%

-35%

1%

 

Annual Average

1%

5%

70%

44%

-7%

76%

16%

-18%

0%

SOURCES:

1. IMF
2. WM/REUTERS
3. STATE BANK OF PAKISTAN

SCORING MODEL

Taking this a step further, we devised a scoring model to rate various governments over time. Specifically, for each indicator we take the annual average (to control for different terms in office). Then we assign a score of 9 (to the best performer) and 1 (to the worst performer). This is a discrete process based on ranking alone and disregards the magnitude.

To illustrate: General Ayub Khan (1958-1969) ruled for 11 years. During which period the budget deficit grew from Rs1,117 million to Rs2,799 million (-151%). The average annual growth in deficit was -14% (-151%/11). This average was better than 4 other governments. This translates into a score of 5. The model scores are shown in Table 2.

 

 

TABLE 2: FUNDAMENTAL MODEL SCORES

Ruler

Ayub Khan

Yahya Khan

Z A Bhutto

Zia ul Huq

Benazir Bhutto I

Nawaz Sharif I

Benazir Bhutto II

Nawaz Sharif II

Pervaiz Musharaf

Martial Law

Demo -cracy

Start

1958

1969

1971

1977

1988

1990

1993

1997

1999

End

1969

1971

1977

1988

1990

1993

1997

1999

2003

Yrs in Govt

11

2

6

11

2

3

4

2

4

28

17

Govt Budget Surplus/-Deficit

5

6

2

3

7

1

4

8

9

6

4

Currency Devaluation

9

8

1

6

5

2

3

4

7

8

3

Inflation

9

7

1

4

5

3

2

6

8

7

3

Foreign Currency Reserves

5

1

7

3

2

8

4

6

9

5

5

Tax Collection

7

1

8

9

6

5

4

2

3

5

5

Manufacturing Production

9

7

2

8

3

4

1

6

5

7

3

Foreign Debt

1

8

3

7

4

5

6

2

9

6

4

Exports

1

4

9

8

7

5

6

2

3

4

6

Producer Price Index

8

9

1

3

5

4

2

6

7

7

4

Domestic Borrowing

6

5

2

3

8

1

4

9

7

5

5

TOTAL

60

56

36

54

52

38

36

51

67

59

43

EPILOGUE

The total score provides a useful insight into the overall management of the economy by successive governments. It is unlikely that anyone who reveres ZA Bhutto will suddenly begin to hate the man, on the back of our findings. It was never the intention.

We set out to examine our history of financial management and to devise an objective and transparent tool that would help us to make valid comparisons. We believe that we have workable model. In the process, if we have managed to debunk a few myths, then we are happier for it.