The hidden development saga: a perplexing PBS enigma

In the twists and turns of politics, numbers are more than just digits, they're narratives. They shape conversations, guide funds, and affect investor decisions. But what happens when the narrative falters from reality? A puzzling scenario for Pakistan unfolds, as the country shows signs of recovery, yet the official data trails behind.

As the government prepares to unveil the Economic Survey for FY2024-25, reports suggest a GDP growth of 1.54% for the first half of the fiscal year, with hopes reaching as high as 3% by the end. However, these expectations seem increasingly misaligned with both the hurdles faced and the bustling economic landscape within the country.

A glimpse at the economic indicators reveals a glaring disconnect. Despite harsh monetary conditions, domestic sales tax collections jumped a staggering 40%. Remarkably, even after adjusting for inflation and tax rate changes, this implies a real growth of approximately 19%, a level of economic vigor that should positively impact industrial output. Instead, the Large-Scale Manufacturing (LSM) index records a concerning 1.9% contraction. This raises a bold question: if production is shrinking, what are the underlying factors driving this tax surge?

There are further inconsistencies when scrutinizing the private sector credit trends. Between July-March of FY2025, credit to manufacturing boomed by an astounding 72%, thanks majorly to a surge in working capital loans. Ordinarily, such financial data points to a flourishing industrial sector. But the national accounts show no matching improvement. Are we failing to account for a burgeoning segment of small and medium enterprises, or is our current data collection simply outdated?

This puzzle deepens when we scrutinize the import of capital goods, namely machinery and equipment essential for manufacturing. Historically, a 1% increase in capital goods imports is linked to a 0.33% rise in LSM output. With a 13.1% surge this year, one expects to see at least a modest uplift in LSM. Yet, the negative growth persists, causing us to wonder whether unresolved delays in implementation or data misassignments obscure the real picture.

Economic recovery isn't confined to factories. Consumption patterns across Pakistan indicate a different tale. Pakistan has a high penchant for consuming—around 87% of GNI—much driven by remittances, which hit an impressive $28 billion within the first nine months of FY2025. If real consumption grew beyond 4% after inflation, GDP should, according to historical patterns, be hovering around 3.2%. However, this growth isn't reflected in the national accounts, implying that sectors like services and informal retail, frequently bolstered by remittance spending, may not be adequately incorporated in our GDP estimation.

This discrepancy between macroeconomic indicators and GDP estimates is more than a mathematical peculiarity—it highlights weaknesses in our data collection and reporting processes. Numerous provincial departments and sectoral associations deliver figures that are late, incomplete, or cautious. Coupled with obsolete survey methods, the result—a national snapshot that can't keep pace with the economy's true pace—is inevitable.

Even in sectors like agriculture and services where evidence hints at a mixed but not entirely grim performance, there's space for more nuanced measurement. From a record wheat harvest to Punjab's livestock initiatives and the services sector's robust growth in IT, finance, and communications, the data whispers a story of strength. But this strength is poorly represented in the headline GDP numbers.

This article isn't an appeal to inflate figures. It's a plea for credibility. Policymakers need accurate data to sculpt the budget, dissect problems, prioritize reforms, and rebuild investor trust. This process begins with an honest acknowledgement: our current GDP estimation strategies are due for a radical upgrade.

As Pakistan gazes towards its future, this moment requires more than statistical alterations—it calls for institutional renovation. The Pakistan Bureau of Statistics must chart this transformation, embracing data integration, inventive analytics, and robust validation frameworks. The cost of inaction is far too high.

GDP is more than a figure. It's a story of our resilience, our productivity, and our common journey ahead. Let us ensure we're telling it right.

(The writer is an Associate Professor of Economics at The Islamia University of Bahawalpur. She can be reached via email: [email protected])

Further Insights:

The discrepancy between Pakistan's official GDP data and the economic activity on the ground can be attributed to several factors:

Informal Economy: The informal economy, which consists of businesses and activities not regulated by the state, is prevalent in Pakistan. It is estimated to comprise between 35% to 45% of the country's GDP. Because the activities in the informal sector are largely unrecorded, they are not included in official GDP figures, which may lead to an underestimation of economic activity.
Fiscal Policies: The government's fiscal policies play a crucial role in economic growth. High taxes and a large budget deficit can constrain economic growth by reducing consumer spending and investment. For instance, in Pakistan, the government doubled the Federal Excise Duty on cement, which could have increased costs for industries, leading to reduced industrial output.
Structural Challenges: Pakistan faces various structural challenges, such as high energy costs, inefficiencies in infrastructure, and inadequate funding for education and health services. These issues can create barriers to growth, limiting the ability of industries to expand and productivity to increase.

The glaring inconsistencies between economic indicators and GDP growth in Pakistan raise questions about the underlying factors driving tax surges and production shrinkages.
Despite signs of recovery in the country, the official GDP data trails behind, suggesting inadequate accounting for sectors like services and informal retail that are frequently bolstered by remittance spending.
Private sector credit trends in Pakistan reveal a surge in working capital loans to manufacturing, yet this financial data points to a flourishing industrial sector contrary to the national accounts.
The contraction in the Large-Scale Manufacturing (LSM) index and the surge in capital goods imports imply a 0.33% rise in LSM output, but the negative growth persists, causing concerns about unresolved delays or data misassignments.
Credibility is needed in Pakistan's economic data collection and reporting processes, as accurate data is crucial for policymakers to sculpt budgets, address problems, prioritize reforms, and rebuild investor trust.
To ensure more nuanced measurement, the agriculture and services sectors need more robust data collection methods to accurately represent the country's strengths, such as Punjab's livestock initiatives, services sector growth in IT, finance, and communications.
Pakistan's Bureau of Statistics must undergo institutional transformation, adopting data integration, inventive analytics, and robust validation frameworks to ensure that the national snapshot accurately reflects the economy's true pace, reducing inconsistencies and improving investor confidence.

The hidden development saga: a perplexing PBS enigma