A rebased economy


The change in methodology to determine the size of the economy has come as a big relief for the incumbent government which had hitherto been under intense criticism for slowing down the wheel of the economy to shrink the economic pie to the extent of bringing recession in the country for the first time during its existence, barring the initial years after the independence.

From a 13-year high of 5.53% achieved in FY18 under the PML-N government, Pakistan’s GDP growth rate fell to 2.08% in FY19 with the PTI taking the reins of the government, and went down further to negative 0.39% in FY20. While the growth rate was projected to recover to somewhere around 4% in FY21 i.e. the outgoing fiscal year, the government decision to rebase the economy from FY06 to FY16 to keep up with price evolution expanded the size of the economy to $347 billion, thereby lifting the growth rate to 5.6%. The government claims that even at the old base year, the growth rate was nearing 5.37% with the incorporation of the final data on the three sectors of the economy i.e. industry, agriculture and services. Well, the secret behind such a big jump lies in the low base effect.

The expansion in the size of the economy has provided room for the government to issue new sovereign guarantees and had a welcome impact on key macroeconomic indicators. For instance, public debt has reduced as percentage of GDP, creating space for the government to make more borrowing. Per capita income is revised up, by about 8%. The tax-to-GDP ratio and exports-to-GDP ratio have rather gone down.

And now the million dollar question! Will this economic expansion, happening due to the rebasing, make the life of the common man any better? Sadly, there lies no such connection. Microeconomy – i.e. the economy of the common man – is not going to take any positive impact.

 

Published in The Express Tribune, January 24th, 2022.

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