Saturday March 25, 2023

The right and wrong of rebasing

January 31, 2022

The federal government recently announced that GDP calculations in Pakistan have been ‘rebased’ and would now be done on the factor prices of 2015-2016 rather than of 2005.

Rebasing of the GDP is a regular process across the world and has happened in the past in Pakistan as well (in 2005, 1998 and 1980). The seemingly bureaucratic if not scientific step of rebasing would have come and passed without notice, but in Pakistan nothing can pass without causing a storm. The main reason was what else was announced on the same day. The government also announced, rather victoriously, that GDP growth in the year 2021-22 had crossed five percent, the second time in the past 10 years – and the PM congratulated his team and the nation. It was also revealed that the debt-to-GDP ratio too had improved. Many interpreted the sudden overnight growth rate changes as manipulation of statistics. This article wishes to look at this move by the government from a critical lens.

First, rebasing is a normal and standard process and therefore the mere act of rebasing is not statistical gimmickry. Second, the rebasing activity seems to have been overdue for some time. The international convention is to be to do this every 5-10 years; Pakistan’s last rebasing happened in 2005. Lastly, the rebasing was being deliberated and apparently consulted and informed to relevant stakeholders including the World Bank (it is unclear how much parliament was informed on this matter).

On the other hand, some fundamental issues need to be considered which seem to have been overlooked. The first is lack of detail on how the rebasing activity was done. Nothing is available on the Pakistan Bureau of Statistics website or that of the Ministry of Economic Affairs. There are some random snapshots from some document, perhaps released to the media, as well as some news articles which state the findings and not the methodology. We are told in these articles that over 50 research studies were conducted but what those research studies were, who conducted them and what their findings were and how they were used to reach the rebased GDP are also not known.

Second, it appears that the rebasing was done in haste. In any rebasing activity there are two components. One is the revision of the factor prices to a new base and the other – which is more difficult – is to look at the structure of GDP again and see if any sectors need to be included or if any sector’s proportions need to be reworked. It is this second part which apparently seems to have been done for large-scale manufacturing but not for the other parts of the economy. What are these parts? These are agriculture, which accounts for almost a quarter of GDP, and the services sector which accounts for almost half.

It appears that the census of manufacturing was done in 2015-16 and a report was released in early 2022, which covered the manufacturing component of the GDP and revisions based on learnings of this census were indeed incorporated. The other two censuses, the census of livestock and agriculture as well as the economic census which covers the retail and services sector, were neither done nor planned. Without these two censuses, GDP remains non-exhaustive in capturing the different sectors of Pakistani economy and over-emphasises industry and under-emphasises services and livestock.

Third, the way the rebasing news and the revised forecasts for GDP were coincided by the Ministry of Planning left a bad aftertaste. It is no news that this government has been struggling with its economic performance, especially because of low growth rates which make inflation and unemployment especially biting for the citizens. Given this pretext, overnight rebasing and almost 20 percent increase in GDP forecasts for the current year raises the question if the government has manipulated the statistics as with rebasing, the major beneficiary happens to be the federal government. This belief is further aggravated because of lack of transparency in the process of rebasing, which is not unique to this activity, but all things related to statistics.

Lastly, the issue of independence as well as capacity issues of the national statistical organisation (PBS) is a perennial problem and comes to light in these issues as well. Given that the PBS falls under the administrative control of the Ministry of Planning and that until recently the constitutionally provisioned chief statistician post was vacant, there are questions of both legitimacy and authenticity of numbers in general.

Moving forward, it is in Pakistan’s best interest to further strengthen our national statistics organisation by both endowing the institution resources as well as independence. Moreover, the process of release of statistics should not only be transparent but appear to be transparent as well. National statistics are too important to be left to politicians for influence; but they also need to be saved from the domain of statisticians and economists who appear to make everything a black hole which cannot be criticised and put to public scrutiny.

In short, the rebasing activity was long overdue – a good step but executed badly and collectively. We need to ensure that future national statistics are released taking into consideration some of the shortcomings mentioned in this article.

The writer is the executive director of a data analytics company and is a heavy user of national statistics data.