HAS winter turned the corner? The gruelling cold till a week ago has suddenly, without warning, given way to milder days. Signs of spring abound. While a cold snap is very likely in the weeks ahead, yet another seasonal transition is nearing completion. Winter is on the retreat. Unfortunately, the spreading of wings by spring is less equivocal than the question “has the economy posted ‘green shoots’ of a durable recovery?” Unlike in the natural world, where the underlying processes at work are more synchronised, the many moving parts of an economy work in a less coordinated or harmonised manner, moving at different speeds or even in different directions for protracted periods of time. Hence, spotting an incipient economic recovery in its early phase is almost invariably more art than science.

When we talk of an ‘economic recovery’, what exactly are we looking for? This question is the source of considerable angst and confusion in the case of describing Pakistan’s recent economic performance. The PML-N camp is celebrating an ‘economic turnaround’ almost entirely on a supposedly higher growth rate for the economy, the completion of the IMF programme, and the expectation that the power projects under CPEC will deliver an impetus in the medium term. This view is reinforced by the much more positive and hopeful narrative from international financial institutions, agencies and the media regarding Pakistan’s economic performance in the past three years.

A competing, and entirely different, narrative about the strength and prospects for the economy coming from many independent Pakistani economists and commentators is that the official economic growth rate is exaggerated, any impulse to growth in the past three years has come from debt accumulation and the decline in oil prices, and not from structural reform or a surge in private investment, and Pakistan’s overall development and socioeconomic indicators remain abysmal. The implication of this contrarian narrative, if it is accurate, is that the positive economic indicators are possibly more cyclical than structural, are therefore unlikely to be sustainable, and the developmental impact of the economic growth is muted and suspect.

Two completely different narratives on the economy are in the field.

So how do we reconcile the two opposing narratives of the economy? This conundrum is akin to what Akira Kurosawa explored in his 1950 classic film Rashomon, where protagonists present entirely contrasting perspectives to describe the same event they have all witnessed.

A large part of the confusion on the true state of affairs with regard to the economy is arising from the fact that different benchmarks are being used by the various commentators. This government is focusing almost exclusively on ‘GDP growth’. The obsession with an annual GDP growth rate has become a worldwide phenomenon since the current era of global economic competition truly began circa mid-2000s (what I have referred to earlier as the ‘growth Olympics”). Countries have competed with each other in reporting spectacular rates of economic growth each year. The hope has been that reporting jaw-dropping higher rates of GDP growth would better position countries in the other great global competition — that for inward foreign direct investment.

This competition among developing countries has led to a sharp deterioration in the quality of national statistics, leading to ever more opaque and questionable growth data being produced. Beyond the quality of the underlying data is the issue of what, and how much, a GDP growth rate really conveys.

The annual official GDP growth rate in Pakistan is a function of changes in economic activity in myriad sub-sectors, many of which (such as small-scale manufacturing) are, in the absence of annual surveys, ‘black boxes’ where estimations and plug numbers are used. This not only produces an aggregate number which is unreliable, but also one which gives no indication of the underlying growth process. How inclusive has the growth been, how sustainable is it in terms of domestic savings, investment, the balance of payments or the environment, what is its regional distribution, to what extent is it driven by investment, or what impact did the growth have on overall developmental outcomes — are just some examples of how little is conveyed by the headline GDP growth number about the quality of growth.

The other thing which is not conveyed at all by the government’s preferred economic indicator is the link between policy effort and GDP growth. This is hugely convenient for governments since even if the entire economic growth has come about due to favourable weather, the government of the day will claim credit for it. Fixating itself on the growth in GDP also avoids focus and scrutiny of the government’s spending priorities or its taxation policies, its success or lack of in reducing poverty or corruption or strengthening institutions etc.

In short, by making GDP growth the only barometer and benchmark, indeed arbiter, of its economic policies and performance, the government hopes to avoid accountability for its acts of commission as well as omission with regards to economic governance.

Tailpiece

The government has a clear incentive in producing a less than complete or clear picture as to the state of the economy, but what about the positive narrative constructed by the multilateral agencies and the international media? Surely that narrative is independent and unbiased? There are at least two issues with international commentaries on the economy. First, many are ‘conflicted’ opinions, produced by agencies with a clear conflict of interest (global investment banks and consultancies vying for government projects in Pakistan, or the IMF trying to ‘bail-in’ international private capital). Second, many of these institutions, especially the private ones (though not all), lack a nuanced expertise of Pakistan’s economy and produce reports anchored mainly on interviews with government officials on short trips to the country, or based on the prevailing group think in financial markets.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, February 3rd, 2017