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Saturday November 27, 2021

Controversy on GDP

May 31, 2021

The announcement by the government – that during the nine months of the current fiscal year GDP growth has touched the 3.94 percent mark and is likely to end up at 4 percent by the end of the year – has triggered a controversy as to the veracity of the claim.

The opposition parties including the PML-N and the PPP and some economists have claimed that the figure given by the government is inflated as it is far above the growth projections given by international institutions as well as the government itself and that it is not possible to achieve in such a short time.

The International Monetary Fund (IMF) had projected Pakistan’s GDP growth rate at 1.5 percent for the current fiscal year 2020-21 compared to negative 0.4 percent for the previous fiscal year 2019-20. However, the PTI government had envisaged a GDP growth rate target of 2.1 percent with the expectation that the recovery of economic activities will help achieve the growth trajectory in the aftermath of overcoming the Covid-19 pandemic.

The first thing that comes to mind is that the projections are merely expectations about the performance of the economy made on the basis of existing trends in regard to a specific period of time and any change in the circumstances and economic variables can alter the final outcome. So, there is a difference between projections and the real outcomes. One thing is undeniable: even if one sticks to the projections given by the IMF and the government, the economy surely has been put in the revival mode as a result of the economic strategies adopted by the government.

However, the developments on the economic front do indicate that even if the economy may not have touched the 3.94 percent mark (allowing for accounting mistakes) – as being claimed by the opposition and some detractors of the government – the growth rate achieved is surely much higher than the projections.

The factors that have made this possible include growth in remittances by 24 percent during this period. The increase in remittances to a great extent is attributable to the measures adopted by the government and the central bank to block illegal and informal money transfers into and out of the country to comply with FATF conditions in order to exit the task force’s grey list.

Further, the State Bank has made it much easier for expats to send back money through banking channels. The launch of the Roshan digital accounts for the Pakistan diaspora has also attracted more reliable long-term deposits of almost half a billion dollars in the last few months. The remittances are helping in the revival of the economy in many ways by imparting stability to it.

The economy which had hit rock bottom showing a negative GDP growth rate, mostly attributable to the devastating effect of the onset of Covid-19, is also showing signs of revival due to the policy initiative of the government during the pandemic. First, the government strategy to contain the pandemic through smart lockdowns and a relief package to the poor proved a tremendous success and the country was not affected by the pandemic as badly as most of the developed countries. The initiative also received unqualified acclaim from the global community and the WHO. Consequently, the effect of the first phase of the pandemic attack was mitigated to a great extent.

The government rightly decided to keep the economy kicking as shutting down the economy could have killed more people than the pandemic. The biggest initiative in this regard was giving the status of industry to the construction and housing sector and the announcement of a package of incentives for investors. The construction industry is linked with at least 40 other industries and it was rightly thought that investments in this sector would have a considerable spill-over effect on those industries, giving a desired boost to the economy as well as creating jobs.

The package of incentives for the construction industry had a cut-off date of December 31, which also applied to individual buyers of houses who were exempted from declaring their sources of income. The government, in view of the demand of the construction industry and realizing the fact that the period given for investments under the package of incentives was not long enough to achieve the objectives of the initiative, rightly granted extension in the date for the fixed tax regime besides extending the date for non-disclosure of income till June 30, 2021.

At the same time, the projects that were to be completed by Sept 30, 2023 were also extended by one year. The announcement of loans for low-cost housing by the government also seems to have a rejuvenating effect on the economy. Reportedly, these measures have triggered a tremendous boost to the cement and steel industries.

People are very appreciative of the government initiative to give priority to the building of low-cost housing as per the envisaged manifesto of the PTI. To be honest, though, successive governments have been sporadically unfurling initiatives in this regard, but none of them actually showed the kind of commitment and dedication to meeting the shortage of housing units in the country, particularly for the poorer segments of society, as has been done by the PTI government. The magnitude and extent of the effort is also unparalleled.

The country has also witnessed bumper wheat, maize, cotton and sugarcane crops which are a tremendous boost to the economy. Growth in the large-scale industrial sector reportedly was also in the vicinity of 8-11 percent. Current account deficit has turned positive. The rupee has started stabilizing. All the foregoing factors – some of them unpredictable like the crop yields – have surely helped surpass the given projections at the beginning of the year.

Minister for Energy Hammad Azhar therefore may not have been off the mark when he claimed that GDP had increased from $263 billion to $296 billion registering an increase of 33 percent during the current fiscal year. The government also claims that the per capita income has also increased from $1496 to $1608. These are verifiable figures and do lend currency to the government claim of the growth having surpassed the given projections. The trickle-down effect surely has a time-lag.

The writer is a freelance contributor. Email: ashpak10@gmail.com