Finance ministry challenges figures given in report by The News
ISLAMABAD: The finance ministry has issued a rebuttal to the report in The News titled “GDP Growth Worked Out?” written by Khalid Mustafa, published on June 23, and called it misleading and based on an ignorance of the system of computation of GDP estimates followed in Pakistan as well as internationally.
It said the reporter is harping on the issue that the GDP growth number for 2013-14 are much lower than those estimated by the PBS.
This issue has already been responded by Pakistan Bureau of Statistics (PBS) in different newspapers.“It is clarified that annual estimates of GDP as well as GFCF for the year 2011-12 (Final), 2012-13 (Revised) and 2013-14 (Provisional) were approved by the National Accounts Committee (NAC) Meeting on 15th May, purely on the basis of data available up to that point of time and not in accordance with the desires of any one in the government hierarchy. The data for the balance of the year is projected, which is the reason that these numbers are provisional and remain provisional till full data becomes available over the following months.
The correspondent has also commented on the quarterly GDP estimates.
The first quarter growth and the second quarter/mid-year growth, both were released by PBS; one is acceptable to the writer while the other is not. The IMF accepted the figure of PBS which should be ample proof of the reliability of the statistics released by PBS.
As far as the question of withholding the information of large scale manufacturing is concerned, it is completely baseless. The Quantum Index Manufacturing Industries (QIM), the indicator being used to measure the performance of this sector, is compiled on the basis of information received from three major sources including Oil Companies Advisory Committee (OCAC), Ministry of Industries and Provincial Bureau of Statistics which takes time and is published after certain time lag. The latest available information was up to the month of February, 2014 was used to derive the estimates of large scale manufacturing which were approved by the NAC. Further, the writer has completely misstated the facts by quoting that the budgeted PSDP of Rs1150 billion has been used in the compilation of value addition of construction. The fact is that total value addition of construction sector even at current prices is Rs494.3 billion; therefore, the question of inclusion or exclusion of these PSDP figures is not relevant.
The correspondent has also mistakenly attributed the profits of commercial banks with the value addition of finance and insurance sector. The value addition of this sector, being compiled through Financial Intermediaries Services Measured (FISM), is based on the amount of advances and loans and not on profits of banks.
The correspondent gives his verdict that the GDP growth is 3.5 %. He has not given any analysis to support his claim but has picked up a number that is being bandied about in the press. The commentators need to familiarise themselves with the methods of GDP computation before commenting on technical issues.
In connection with his view on budget number to show lower budget deficit; it is stated that writer’s view is not correct. PTA is a government authority responsible to collect the licensing / auction fees on behalf of the federal government and such auction fees on behalf of the federal government and such auction fees are always form part of the Federal Consolidated Fund. Similarly, the non-tax revenues receipts are revenue of the federal government administered by various ministries/divisions/departments and comprise of following main sources: i) Income from property and enterprise, ii) Receipts from civil administration and other functions, iii) Miscellaneous receipts.
The income from property includes the mark up recovered from the provinces and public sector enterprises, dividend and other receipts of the regulatory bodies. The receipts from civil administration comprise of State Bank of Pakistan (SBP) Profit, Defense Receipts, Law & Order Receipts etc.
The foreign grants are reflected under non-tax receipts according to the Chart of Accounts, as per International Best Practices. These are always form part of the federal government and the actual receipts under these heads can be verified from the historical data disseminated on the Website of the finance division.
Khalid Mustafa adds: I am grateful that the Ministry of Finance has given me the opportunity to further highlight the mistakes the government has committed in calculating the provisional GDP growth of current financial year 2013-14 at 4.1 percent. The article I wrote in Money Matters — the magazine of The News International which was published on June 23, is not misleading, rather it mirrors the manipulations done to show better GDP growth.
Some of the issues the finance ministry has raised in the clarification I have factually not mentioned in my article. For example, I have not mentioned anything about the revised GDP growth targets; rather I kept my focus on provisional GDP growth which the government has worked out based on the numbers of first 9 months of the current fiscal which suit the government.
Coming to paragraph three of the clarification, I know very well that PBS came out with the work-in-progress quarterly estimates of GDP and according to PBS calculations, as per the work in progress, the real GDP grew by 5.1% in the first quarter of 2013-14. The officials of PBS went to show this number to finance minister; because that was the first time they calculated quarterly GDP. The finance minister got excited knowing the fact that this is a work in progress and went ahead and informed Prime Minister Nawaz Sharif, and leaked the number to the press.
It attracted widespread criticism from professional economists because the number was beyond their expectations. After that the finance minister started saying, “I don’t own this number, but at the same time I don’t disown this number.”
In the paragraph 4 of the clarification, finance ministry claimed that it has not withheld the information about Large Scale Manufacturing (LSM). I do not agree with the ministry as it has withheld the information of large manufacturing scale for the month of March that shows negative growth of 2.7% and for July-March period, the number was down to 4.3% as opposed to 5.3% used in calculation of the GDP keeping in view of the number of first 8 months not the 9 months. Here the government has visibly played the foul.
About the 11% growth in construction sector the government has worked out is highly questionable as there is no one-to-one correspondence between PSDP and value added in construction. It is known to everyone that construction growth is derived from the cement production and growth in cement production has alarmingly stayed at 0.13% which is almost flat. When there is flat growth in cement production, then how construction sector can grow by 11%. The 11% growth in construction sector becomes more controversial when the PSDP has already been slashed to Rs393 billion. Here I would appreciate if the government shares with the masses and with me the methodology of calculating value added in construction as the 11% growth in construction sector is not understandable. If the cement is not utilised, then what’s the rationale of 11% growth in construction? Here I’ll be happy to see the methodology used by the government.
In the clarification, the ministry has criticised the author of the article saying he had given his verdict that the GDP growth is 3.5% without any analysis to support his claim. Here I want to clarify that I have mentioned 3.5% growth with supporting facts by stating both saving and investment have declined sharply compared to last year. How on the earth, GDP growth can accelerate in the midst of declining saving and investment rate. I will appreciate if the government clarifies this anomaly.
In the clarification the ministry stated that writer’s view is not correct on government’s intention to show the better growth arguing that PTA is a government authority responsible to collect the licensing / auction fees on behalf of the federal government and such auction fees on behalf of the federal government and such auction fees are always form part of the Federal Consolidated Fund. Similarly, the non-tax revenues receipts are revenue of the federal government administered by various ministries/divisions/departments and comprise of following main sources.
Here I clearly want to mention that I did not raise the said issue what clarification says. However, I did mention about the utilisation of Universal Services Fund (USF) for which cellular companies contribute a certain portion of their profits. USF is meant for infrastructural development in telecommunication sector and the huge amount in the fund was accumulated over the last several years and how can the government use the resources accumulated over the years in just one year. To the best of my knowledge, cellular companies have already gone to Supreme Court and challenged the taking over of this amount as non-tax revenue.
In the last paragraph of the clarification, the finance ministry says that the foreign grants are reflected under non-tax receipts according to the Chart of Accounts, as per International Best Practices. If this is the best international practice, then why does IMF treat fiscal deficit separately with and without foreign grants.
The Finance Division is best advised to look at the IMF program document. By treating foreign grants as revenue, the government has eliminated the difference and readers can see in the IMF document, particularly in fiscal table that foreign grants appear as separate line item and has never been treated as part of non-tax revenue.
Therefore, the author stands by its article.