Pakistan Economy "Not in a Good Place"? Atif Mian's Gloom Justified?
Pakistani-American economist Atif Mian has recently analyzed Pakistan's economy in a series of tweets. He has said "Pakistan's economy is not in a good place", adding that the nation's "per capita income has not risen in 3 years (in fact down slightly)". He has particularly mentioned the country's "exaggerated external demand driven by its rentier economy", "flawed energy policy" and "a broken economic decision system" among the main causes for poor economic performance. Is Atif Mian's diagnosis correct? Is the official reported data Atif Mian using accurate? What is the current PTI government doing or not doing to correct the problems identified by Mr. Mian? Let's try and assess the situation.
|Economist Atif Mian's Tweet on Pakistan Economy|
Per Capita Income:
Pakistan's officially reported GDP and per capita incomes are grossly understated. These are based on the last economic census that was done from April 2003 to December 2003 and published in 2005. The last agriculture census was in 2010, and livestock census in 2006, according to Dr. Ishrat Husain, former governor of The State Bank of Pakistan. The country's economy has changed significantly since then, adding several new economic activities while others have become less important. For example, the Quantum Index of Large Scale Manufacturing (QIM) with 2005-06 base year gives a weight to textiles of 20.9% (Yarn 13.7 and cloth 7.2). But the textile industry has moved up to higher value added products as reflected in its exports. The value added textiles (non-yarn and non-cloth) now make almost 80% of the total textile exports. These changes are not reflected in current GDP calculations.
In its 2014 annual report, the State Bank of Pakistan talked about a number of new sectors that are either under-reported or not covered at all: "In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM."
Bangladesh just rebased its GDP in 2020-21 to 2015-16. This has boosted its per capita income by double digits for every year since 2015-16. Bangladesh's per capita income for the 2015-16 fiscal year has now gone up to $1,737 from $1,465 in the old calculation. For the 2019-2020 fiscal, the per capita income has gone up to $2,335 from $2,024. The new GDP estimate covers 21 sectors, up from 15 sectors previously. India last rebased its GDP in 2015, a change that bumped up its per capita GDP by double digits. Nigeria's last rebasing in 2012 increased the size of its economy (GDP) by nearly 90%. Pakistan's current base year is 2005-6. Rebasing which is now long overdue will almost certainly increase Pakistan's per capita income by double digits.
In this age of big data, it is important for Pakistan to ensure that its bureaucracy at Pakistan Bureau of Statistics (PBS) keeps the national economic data as current as possible. PBS should release the results of the Census of Manufacturing Industries CMI 2015-16 and the finance ministry should rebase Pakistan's economy to year 2015-16 to better reflect the current economic realities. This data is extremely important for businesses, investors, lenders and policymakers.
|Pakistan Power Generation Fuel Mix. Source: Third Pole|
Hydroelectric dams contributed 37,689 GWH of electricity or 27.6% of the total power generated, making hydropower the biggest contributor to power generated in the country. It is followed by coal (20%), LNG (19%) and nuclear (11.4%).
|Cost Per Unit of Electricity in Pakistan. Source: Arif Habib|
Nuclear offers the lowest cost of fuel for electricity (one rupee per KWH) while furnace oil is the most expensive (Rs. 22.2 per KWH).
|Pakistan Exports Trend 2011-21. Courtesy of Ali Khizer|
|Pakistan Textile Exports Trend 2011-21. Courtesy of Ali Khizer|
|Pakistan's Current Account Balance vs International Oil Prices. Source: Arif Habib|
Recent history shows that Pakistan's current account deficits vary with international oil prices. Pakistan's trade deficits balloon with rising imported energy prices. One of the keys to managing external account balances lies in reducing the country's dependence on foreign oil and gas.
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