Wednesday, January 21, 2015

State Bank: Pakistan's Actual GDP Higher Than Official Figures Show

"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." State Bank of Pakistan Annual Report 2014
Economists have long argued that Pakistan's official GDP figures significantly understate real economic activity in terms of both production and consumption.

M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE),  explored several published different approaches for sizing Pakistan's underground economy and settled on a combination of  PSLM (Pakistan Social and Living Standards Measurement) consumption data  and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08". 

And now the State Bank of Pakistan has focused on the production side of the economy in its annual report for Fiscal Year 2014. The nation's central bankers have singled out the economic activity in large scale manufacturing sector as their focus in the latest report.  They say that the existing LSM (Large Scale Manufacturing) index was based on Census of Manufacturing Industries (CMI) that was conducted in 2006 which included only those sectors which had significant value addition to Gross Domestic Product (GDP) at the time of census. 

In the years since 2006 CMI (Census of Manufacturing Industries) census, Pakistan has seen a significant expansion of its middle class along with rapidly growing consumer demand in sectors such as processed foods and fast-moving-consumer goods (FMCG).  It's one of several major new sectors whose growth is not reflected in the official GDP figures. 

Pakistan's Processed Foods and FMCG Sector Source: BMA Capital

According to a report by analysts at Pakistan's Topline Securities that examined 25 consumer firms in various sectors, the 2012 sales of the FMCG firms increased by 17% to Rs. 334 billion while profits grew by 40% to Rs. 24 billion. In the five years between 2008 and 2012, sales of these companies showed a compounded average growth rate (CAGR) of 18%, while profits grew at a CAGR of 20%.

Engro Foods, a star performer in the sector, reported 191% increase in profit in 2012 alone, led by the dairy and beverages segment. Other players such as Nestle, Proctor & Gamble and Unilever, have also seen explosive growth with many new plants in production to meet demand. The growth in this sector is not reflected in the LSM component of GDP. 

Another key area in large-scale manufacturing is plastics industry. Pakistan Plastic Manufacturing Association says there are 6,000 units operating in the country, employing  600,000 people. This sector is producing a broad range of products from household items, industrial containers, medical and surgical items, auto parts, stationery items and PVC pipes. Yet they are not covered in LSM.

The SBP report further explained that the LSM data was not being reported in Pakistan in accordance with the International Standard Industrial Classification (ISIC) of United Nations Statistics Division’s defined 22 broad categories of manufacturing.  The reporting of LSM is limited to only 15 sectors identified by the ISIC while data pertaining to manufactures of apparels, publishing, printing products and recorded media, fabricated metal products (except machinery and equipment), office and accounting machinery and computers, medical precision and optical instruments and recycling of metal and non-metal waste scrap, is not included as part of Pakistan’s LSM.

Pakistan has changed a lot since 2006 in terms of economy and demographics. The World Bank moved Pakistan from a low-income to middle-income country in 2007. Pakistan is much more urbanized and more middle class now than it was in 2006. Pakistan's large scale manufacturing (LSM) sector  has changed to respond to meet the rising new product demands of the country's growing middle class consumers. Its time for Pakistan Bureau of Statistics (PBS) to conduct a new manufacturing census and Pakistan Census Bureau to do a population census to paint a more accurate picture of the country's demographics and economy now.  

Related Links:

Haq's Musings

Pakistan's Growing Middle Class

Pakistan's GDP Grossly Under-estimated; Shares Highly Undervalued

Fast Moving Consumer Goods Sector in Pakistan

3G-4G Roll-out in Pakistan


farhan said...

Pakistan GDP nominal is no less than 400Billion dollars today,but i will wait for the official change in base year.

Anonymous said...

The Rebasing in 2013 was approved by the caretaker govt but didn't took place,instead few months later Ishaq dar confirmed that the govt will rebase it in the FY 2014-15.Last time musharaf approved the base year to be changed from 1991-12 to 2000 in 2005-06.

Now this time,we are expecting the Base year to be changed to 2010

Singh said...

Data on (India's) gross domestic product (GDP), with 2011-12 as the base year instead of the current 2004-05, are slated to be released on January 31, 2015, which will raise India's GDP size for three years from 2011-12 onwards. Data on the Index of Industrial Production (IIP) and Wholesale Price Index (WPI)-based inflation, using the new base year, will be announced from March 2016.

“The new series of national accounts is tentatively scheduled for release on January 31, 2015,” said a statement by the Ministry of Statistics and Programme Implementation.

Typically, GDP data of past years are revised on the last working day of January. As such, data for 2012-13 and 2013-14 might be revised on January 31 next year (GDP growth for 2012-13 and 2013-14 stood at 4.5 per cent and 4.7 per cent, respectively).

However, if past revisions are a yardstick, there isn’t much hope of a revision in GDP growth. However, in absolute numbers, GDP size of the economy would be increased for 2011-12, 2012-13 and 2013-14.

Sahama said...

""State Bank: Pakistan's Actual GDP Higher Than Official Figures Show"

That is not unique to Pakistan! Most countries are revising figures that tend to be higher especially developing countries. Inputs are constantly changing which makes exchange of goods and services little bit more efficient (technology etc) ultimately reflecting improved figures that assess inflation as well

Riaz Haq said...

Sahama: That is not unique to Pakistan! Most countries are revising figures that tend to be higher especially developing countries..."

Yes, but the entire fast growing sectors missing is still unusual as is the case in Pakistan now. These sectors have grown to meet the needs of rapidly expanding middle class in the country.

Since 1990, Pakistan's middle class had expanded by 36.5% and India's by only 12.8%, according to an ADB report titled "Asia's Emerging Middle Class: Past, Present And Future.

Sahama: "Most countries are revising figures that tend to be higher especially developing countries...."

In "Capital in the Twenty-First Century", French economist Thomas Piketty argues that the GDP growth rates of India and China are exaggerated.

Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data."

"In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

Riaz Haq said...

From Jakarta Post:

Four years ago, newspapers in India published the intriguing news that their government was likely to benefit from the changes in base year for calculating gross domestic product (GDP) data, as the change would render the fiscal deficit much lower than projected.

Neighboring Pakistan then amplified the issue by stating that it explained a statistical paradox on living standards between the two countries. This January, India will again rebase its GDP with a newer base year, and the sneaking suspicion regarding who will benefit remains.

Last April, Nigeria, meanwhile, gained the status of the largest economy in Africa, surpassing South Africa after changing its GDP base year from 1990 to 2010. The Nigerian National Bureau of Statistics said that the change would better represent the current structure of the economy.

As a result, Nigerian GDP almost doubled compared with when it was calculated from a 1990 base year.

Indonesia is set for a similar occurrence with the upcoming economic growth announcement in February. GDP, the main element to measure economic growth, will appear in a new base year: 2010.

The year 2000 has been used as a base year for 14 years, or 56 quarters of GDP calculation. Since the base year is essential to develop GDP, it should be renewed or rebased when the economic structure can no longer be appropriately represented by the current base year.

However, changing the base year requires a lot of effort and money, especially in developing countries where administrative data are not yet sufficiently available.

Taking these points into consideration, the Central Statistics Agency (BPS) has decided to rebase GDP from base year 2000 to base year 2010. The base years prior to 2000 were 1993, 1983, 1973 and 1960.

Resetting the base year is usually accompanied by introducing a new classification of GDP components, either components in GDP by expenditure or GDP by industry. Every change in base year usually presents more detailed component classifications of GDP.

More importantly, rebasing usually changes GDP levels because of improvement in methodology, coverage and data source quality. As the result, the level of GDP will likely rise.

After changing the base year from 1993 to 2000 a decade ago, Indonesian GDP in 2000 at current prices was Rp 1.27 quadrillion (US$100.64 billion) using 1993 as the base year, but higher by 9.87 percent using 2000 as the base year. This means there was an additional Rp 125 trillion in nominal GDP amount for the same economy.

Changing the base year from 1983 to 1993, GDP for the year 1993 also came out in two versions. The first version based on 1983 amounted to Rp 302 trillion and the second version based on 1993 totaled Rp 329 trillion, an increase of Rp 27 trillion.

However, the economic growth figure will not be affected significantly, neither upward nor downward. Rebasing mostly affects the size of the economy, not the growth.

This is because as regards the growth, the principle of comparability should be applied as a new set of items can only be compared with another new set of items. Put briefly, an apple can only be compared with an apple.

Nevertheless, the above statement is open to criticism. This is because new data coverage added to the GDP calculation will surely bring a new set of commodities.

And as new commodities, they stick to the rule of industrial life cycles, which states that new commodities grow more quickly than old commodities.

Consequently, overall growth will likely be higher than the old series, although in many cases, the difference is negligible.

- See more at:

Anonymous said...

Pakistan has a score of 54.1 and ranks 16 while India has a score of 50.9 and ranks 37 among 151 countries on Happy Planet Index 2014.

Among South Asians, Bangladesh is the happpiest ranking at 11 and scores 56.3. `

Majumdar said...

Prof sb,

Inshallah, revaluation of GDP figures will show Pakiland to be much richer than suspected. However, correct as that is, I suggest you make this suggestion only from the safety of the Net and from the streets of Pakiland. The aam abdul is in a bad mood with the power and fuel shortage and may take your findings in a completely wrong sense.


Riaz Haq said...

Majumdar: "The aam abdul is in a bad mood with the power and fuel shortage and may take your findings in a completely wrong sense."

Yes, you are right.

However, the under-reporting of GDP and fuel shortage are both systems of the same poor governance and government dysfunction.

Any progress in Pakistan is in spite of, not because of its leadership.

Kadeer said...

More than the GDP figure alone, the year on year change in GDP is considered vital. We have low savings rate, our exports are not diversified and relatively experiencing lower growth, there is little investment in the inefficient power sector, the security of the nation and very little foreign investment. China has promised more investment but that has not yet materialized.

All these factors among many does not bode well for future growth of the economy.

On paper GDP may be revised but ultimately without growth the nation cannot progress. Bad governance on top of it doesn't help either

Riaz Haq said...

Kadeer: "More than the GDP figure alone, the year on year change in GDP is considered vital."

Ignoring the fastest growing sectors of the economy results in understatement of growth rate as well as GDP.

Riaz Haq said...

With over 100 million people below the age of 30 aspiring to change their lives, the rise of Pakistan is just a matter of time, Morgan Stanley Chief Investment Strategist David M Darst said on Tuesday.
“Demographics will play a major role in coming decades. Pakistan is among those nine countries in Asia that will add another China in the next 35 years and the impact of this change will be phenomenal on the world economy,” he said while giving a lecture on “The World Economic Environment: Where’s the Global Capital Going”.

It was part of a special series of lectures that was organised by The Aga Khan University here at its auditorium.
With a young population of an average age of 22 years, “I believe the opportunities that the young entrepreneurs from Pakistan have are going to make an exceptional contribution to the economy of the region,” he added.
Darst, who is the author of 11 books and has a PhD in economics from Yale, said it is wrong to believe that Pakistan is lagging behind due to its proximity with Afghanistan, Iran and India. “In fact, I believe Pakistan is in the centre of Asian countries like Iran, Bangladesh, Vietnam and Indonesia that will significantly contribute in the world economy in coming decades.”
Speaking about the strong fundamentals of Pakistan’s stocks, he said, with 31% returns in dollar terms Pakistan led the world markets in 2014. “What is important is that the stocks in Pakistan are still very cheap compared to the markets in the industrialised world and they are performing better than many markets in terms of returns,” he added.
“I am surprised to see low number of investors in the bourses of Pakistan. This must change considering the strong fundamentals of Pakistani stocks.”

Darst said women in the world are playing an important role in today’s world economy. The rise of the entrepreneurs from the developing world, especially women entrepreneurs, will also bring significant positive changes in this century.
Listing down the challenges to the global economy, he said though Pakistan and India have benefitted from the current sharp decline in oil prices, sudden fall in oil prices has rejuvenated fears of deflation in many countries.
He said Europe is redefining itself and the sharp changes in Europe can surprise the world at large.
Speaking on the challenges facing Europe in relation to Greece, he said the new elected prime minister of Greece could take decisions that may not go well with the euro and the overall economy of the continent.

Riaz Haq said...

KARACHI: Subjective factors are holding back Pakistan, a nation that fares better than most its equals in the emerging world. “Pakistan has good cards. Here, it is more a question of playing them well.”

David Martin Darst, an investment strategist, writer and an incorrigible optimist, visiting Pakistan on the invitation of Aga Khan Univer­sity Hospital, said while talking exclusively to Dawn.

Currently he serves as a senior adviser and a member of Morgan Stanley Wealth Management Global Investment Committee, the company he joined in 1996 from Goldman Sachs.

Counting Pakistan’s blessings, he mentioned demographic bonus, its geography, vibrant media, entrepreneurial bent, assertive judiciary, history and rich cultural diversity, pool of overseas Pakistanis remitting sizeable monies, deep-rooted faith, existence of family and community.

He considered future outlook good for Pakistan and bracketed it with nine emerging economies that have collective potential to outperform giants, like China and Japan, in the next four decades.

He reposed confidence in the country’s capital market which he thought can attract big inflow of portfolio investment on the strength of its comparative performance.

“People tend to see the world too simplistically. Sometimes greatest investment opportunity is in countries that are perceived to be most risky.”

David, who was in the office of Morgan Stanley at the World Trade Centre when it was attacked on Sept 11, 2001 and was amongst fortunate people who left the building before it collapsed, did not sound bitter.

He first came to Pakistan about 20 years back and likes to return to the country at every chance that comes his way.

“This is my 10th visit. I have seen a few cities and been to up north. I think Swat and other hill-stations are amongst most beautiful places I have ever been to. The more I know the country, the more I like it,” he mused.

He said Pakistan is the middle child of Asia, neither big, nor small and would play a decisive role in setting the direction for the region.

“The family goes the way of the middle child,” he quipped lamenting the negative world image of Pakistan that has failed to acknowledge its contributions, inclu­ding the size of its participation in UN peace-keeping forces in difficult environments.

Riaz Haq said...

The general public is expecting low inflation in coming months, a recent survey shows.
Lower expected inflation for the next six months is the dominant view among the respondents of the January edition of the Consumer Confidence Survey, which is jointly conducted by the State Bank of Pakistan (SBP) and the Institute of Business Administration (IBA) every two months.
The survey covers three broad themes: overall consumer confidence indices, inflationary expectations and other key highlights about households’ perception of important indicators.
It reveals Pakistanis believe prices of everyday items and services will increase at a slower-than-usual pace in months ahead. It is important to note that the expectations about inflation actually play a most significant role in determining the overall price level in an economy. Economists believe prices go up partly because people expect them to rise.
According to a recently released research paper on inflation expectations and economic perceptions written by researchers at Yale University and the SBP, inflation expectations are ‘systematically exaggerated’ in developing countries like Pakistan.
The paper concludes that the bias is entrenched for low-income, less educated, female and younger respondents.
“We also find that the recent fuel and energy price (revision) announcements play an important role in determining perceptions of inflation, which suggests that these commodities play an anchoring role for inflationary expectations,” it said.
Perhaps it explains why Prime Minister Nawaz Sharif personally announces every time fuel prices are adjusted downwards. Hearing their prime minister announce a cut in petroleum prices clearly dampens overall expectations about inflation.
Going by the recent shift in respondents’ perceptions about economic conditions, Sharif’s strategy is clearly working.
The survey uses the Consumer Confidence Index (CCI) to measure households’ perceptions about the economy. Showing an increase of 10.4% over the last survey released in November, the CCI stood at 153.93 points in January – its highest level since its inception three years ago.
Similarly, both sub-indices of the CCI, which measure households’ current and future economic conditions, registered a significant rise in January over November.
Year-on-year inflation during the first half of the current fiscal year clocked up 6.1% compared to 8.9% recorded over the same period of preceding fiscal year.
According to Taurus Securities Head of Research Zeeshan Afzal, declining prices of global commodities, lower food inflation, base-effect of major electricity price hikes of October 2013 and lower government borrowings from the SBP resulted in a prolonged dip in inflation. He expects inflation will remain between 4% and 5% during January-June.
The central bank brought down the key interest rate last week by 1% to 8.5% mainly on the back of declining inflation. It has also revised its inflation forecast for 2014-15 from 8% to 4.5%-5.5%.
The percentage of households expecting a decline in the prices of energy items over the next six months in January was 12.2% as opposed to only 4.7% in November. The percentage of households anticipating a decrease in the prices of food items over the next six months in January was 7.1% as opposed to 3.9% in November.
The survey also revealed that 15.7% of more than 1,800 surveyed households were ‘positive’ about government policies in January as opposed to just 10.7% in November. Similarly, the percentage of households expressing interest in buying a car or a house in the next six months also increased in January compared to November.

Riaz Haq said...

State Bank of Pakistan (SBP) Governor Ashraf Mehmood Withra has said that Pakistan’s economy was improving day-by-day.

Talking to Pakistan Television, he said that foreign reserves were increasing, while inflation was decreasing due to the economic policies of present government. Efforts were being made to achieve the GDP growth rate of seven per cent. To a question, Withra said that a good response was received for the the Eurobond. The governor said that steps were taken to ensure merit and enhance professional capability of the SBP staff. Some of them were sent abroad for improving their skills in relevant fields. To another query, he said that the SBP had good working relations with private and public sector institutions.

Riaz Haq said...

The year-on-year inflation rate in Pakistan has dropped to 3.88% in January from 4.3% in December and the latest number is a multi-year (11-year) low (on falling energy prices).

The Pakistani rupee fell to a near two-month low on 2 February as official data showed price pressures further eased in the South Asian country.

The year-on-year inflation rate in Pakistan has dropped to 3.88% in January from 4.3% in December and the latest number is a multi-year low.

USD/PKR rose to as high as 101.40, its highest since early December, and up from the previous close of 101.10. At the highest of the day, the rupee was down 0.3% against the greenback.

The Pakistani currency has been on a downtrend since mid-December and as of now, the USD/PKR pair is testing the 38.2% Fibonacci retracement of its October-December selloff.

A break of the current level will take the pair to 101.80 before hitting the 102 level. The nearest 102 level to watch out for is 102.17.

The 14-day moving average has not broken above the 50-day mark as yet, despite the upward correction in the pair since December, and such a break will trigger a more important buy signal.

However, the 101 support has to hold for more upsides in the pair. If it breaks below that level, then the next level to watch will be 100.21 before testing levels below 100.

Riaz Haq said...

Pakistan has witnessed a 100 percent increase in currency in circulation from Rs. 1,224 billion to Rs. 2,500 billion during the last five years, said Kazi Abdul Maktadir, Deputy Governor Operations, State Bank of Pakistan.
Every year, on average, 1.9 billion pieces of currency notes of various denominations are printed from 2009 to 2014.
He was addressing participants of Conference on Currency Management: Strategies for the Future, organized by State Bank of Pakistan at a local hotel in Lahore today.
Muktadir said that to better manage the rising levels of currency in circulation, improving quality of banknotes in circulation and bringing sophistication in the currency management processes, SBP is now moving ahead with the procurement of state-of-the-art cash handling machines for sorting, bundling, and shredding. With one-stop solution machines that will be capable of sorting, detecting counterfeit, shredding, preparing packets and bundles SBP aims to bring efficiency in the area of banknote processing through latest technology.
Acting Governor State Bank of Pakistan Saeed Ahmad has said that the SBP sees total transformation of cash processing business from manual to automation in next five years and thus would like to see commercial banks aligning their plans with State Bank in this direction.
He said that banknotes are face of a central bank and ensuring circulation of clean notes, removal of soiled and counterfeit notes, and redistribution of fit notes in the system is amongst key responsibilities of the SBP as all necessary steps are being taken to this effect.

Saeed Ahmad elaborated that the SBP has been making extensive efforts to implement its clean notes policy for the last 10 years but with limited success largely due to lack of automation in cash processing. “We have thus planned fast track automation of currency management function both at the central bank and commercial banks level,” he added. He also underscored the role of commercial banks in automation of their cash processing systems.
The Acting Governor elaborated that automation of cash processing at SBP is necessary but it could not be effective in achieving its objective of ensuring adequate and uninterrupted supply of high quality and clean banknotes across the country unless commercial banks also automate their cash processing systems.
The central bank is developing a documentary for educating the masses about the security features of banknotes. Further, a smart phone application on Pakistani banknotes designs and security features is also being developed for enhancing public awareness.

Riaz Haq said...

IMF raises Pakistan's GDP growth outlook
International Monetary Fund, or IMF, has raised GDP growth outlook for Pakistan to 4.7 per cent in financial year 2015-16 and said the country is expected to achieve 4.3 per cent year-on-year growth in current fiscal year ending on June 30.

Outgoing IMF mission head for Pakistan Jeffrey Franks said fund has scaled up its gross domestic product (GDP) growth forecast for Pakistan from 4.4 per cent to 4.7 per cent during July-June 2016 period as the country’s economy is in better shape after the implementations of economic reforms in the past 18 months.

“The sharp drop in oil prices represents an historic opportunity to reduce the vulnerability of the economy by building stronger fiscal and external buffers,” Franks told Khaleej Times on the sidelines of joint Press conference with Pakistan’s Finance Minister Ishaq Dar in Dubai on Thursday.

He said unexpected decline in oil prices gives $4 billion cushion to Pakistan economy and the government should utilise the advantage to address some of the long-standing imbalances in the energy sector.

“Some progress has been made in addressing the structural impediments to higher and more inclusive growth, but few important challenges remain and need to address for sustainable stable economy,” he said.

Elaborating, he said the government should take appropriate steps to enhance the independence of the central bank, resolve energy sector deficiencies on permanent basis, complete the legal framework for deposit insurance and privatise or restructure public enterprises.

Dar expressed the hope that Pakistan economy is on track to achieve its GDP growth target of 5.1 per cent during current financial year 2014-15 as all the major economic indicators are on positive trajectory.

“IMF always gave a cautious outlook, but we are confident of achieving our 5.1 per cent GDP growth target despite some challenges in the country,” Dar said.

To a question, he said Pakistan economy suffered significant losses due to sit-in protests and fall in oil prices, but the PML (N) government led by Prime Minister Nawaz Sharif managed to overcome the crises due to prudent economic policies, financial discipline and strict control on expenditures.

Dar also highlighted the economic reforms undertaken by the government since June 2013 and expressed his satisfaction over the performance of the economy.

“I assure you that Pakistan economy is moving in right direction and will achieve higher growth rates in future,” he said.

Governor of the State Bank of Pakistan Ashraf Wathra said the country has potential to register even higher growth rate in medium term.

“Pakistan has a proven history of achieving six per cent-plus growth in the past. We have to revive the economy and hit at least seven per cent GDP growth in coming years,” he said.

Riaz Haq said...

From Wall Street Journal: India Economists’ Embarrassing Confession: They Don’t Know What GDP Is

India’s radically revised gross domestic product data have apparently left economists dazed and confused because they are uncharacteristically silent about what growth was last quarter.

India is scheduled to announce GDP figures for the quarter ended Dec. 31 on Monday but instead of the regular rush of forecasts, economists seem to have created a cartel of silence, choosing not to make predictions using India’s new methodology.

Last week India surprised all the experts by recalculating GDP growth for the fiscal year ended March. Using a new calculation method, India’s economy expanded 6.9% that year, well above the 4.7% growth the country had announced earlier.

“The revision was massive,” said Siddhartha Sanyal, India economist at Barclays. “We don’t know what the GDP was in the previous quarter, so how do we estimate what is going to happen?”

The change happened because the government brought forward the base year used in GDP calculations by seven years to fiscal 2012. It also switched from using production costs to market prices.

While the headline growth figure shot up with the new calculations, the absolute GDP figure was basically the same as it was before, making it hard for economists to figure out exactly where the new-found growth came from. Meanwhile, the government didn’t give the revised quarterly data or new calculations for this year.

“We are completely blind at the moment,” said Saugata Bhattacharya, chief economist at Axis Bank.

While the new numbers suggest that last year the economy was rebounding strongly, some economists are still skeptical. Most other indicators that year suggested growth was sputtering, they said.

“I am not convinced that there is (such) good news,” said Glenn Levine, an economist at Moody’s Analytics. “If it’s true that the economy is growing close to 7%, then that suggests there isn’t much slack in the economy.”

That’s something economists are finding hard to digest given other indicators such as industrial production have pointed to weakness.

With a lot of questions about the new data still remaining unanswered, economists are only estimating growth for last quarter based on the old method even though the government won’t be announcing those numbers anymore.

Forecasts of eight economists surveyed by The Wall Street Journal using the now-outdated method range between 5.0% and 5.5%, compared with the 5.3% expansion in the September quarter.

While few will venture a guess on what numbers will be announced Monday, “the broader picture is that the economy is improving,” said Axis Bank’s Mr. Bhattacharya.

Riaz Haq said...

All very nice, but perhaps it’s not the upward revision to the growth rate we should concentrate on.

For one, despite expectations of an increase in absolute GDP by up to 10 per cent, we got a verdict of “no change”. Colour those, like Mishra, who saw room for a serious upgrade, surprised. More on that below from Capital Economics but, for comparison, the past three series changes have coincided with upward revisions to the GDP, led mostly by services.

This time the services component of GDP was cut even as industry was boosted. As Mishra said on Monday, the change “does make GDP less lop-sided: industry is now 31% (from 25%), services 51% (57%)”, but:

All three industry components: mining, manufacturing and construction were raised. We expected this, and resulted from a larger data set (500,000 enterprises vs. 2500 earlier). For what it’s worth, in our view agriculture is still under- reported: as an example, in the new livestock census (that fed into this GDP), we had noticed the poultry population didn’t reflect the growth in chicken meat consumption and exports. Buffalo population was also incongruent with rising beef exports.

The biggest surprise though is on the cut to services GDP: the largest cut coming from trade and transport. This is a bit counter-intuitive as millions of new stores have sprouted up all over the country.

And here’s Capital Economics’ Shilan Shah with more of the confusing aspects of the revision:

1) What’s happened to nominal GDP? On the market price measure of GDP (which the Statistics Office has said it will now use instead of the factor price series) nominal GDP in FY13/14 was almost identical to what it was under the old methodology, while estimates for FY11/12 were revised lower. (See Chart 1.) We find this puzzling, as downward GDP revisions following rebasing exercises are unusual in emerging economies. Normally, rebasing uncovers new or under-measured sources of activity. It also seems an improbably coincidence that overall nominal GDP for the last fiscal year was the same even as weights of different components have shifted. (See Chart 2.) This would imply that the effect of giving more weight of faster growing sectors almost exactly offset the effect of giving less weight to slower growing ones.

2) What do the revised data mean for key macro indicators? Much of the comment has focussed on the fact that the revised data would imply a smaller current account deficit, and a healthier fiscal position. But given that nominal GDP has remained almost exactly the same, this isn’t the case.

3) What do the revisions tell us about growth in the current fiscal year? In short, not a lot. The revisions have yet to be applied to quarterly data from this fiscal year, meaning that the latest GDP numbers are redundant for now. We suspect that the most recent quarters will be revised on 9th February, when data for Q3 of FY14/15 are due.

4) Are the new GDP data consistent with other indicators? The revisions are difficult to square with other indicators pointing to continued slack in the economy. Even if we discard the industrial production data (which presumably now also need rebasing), soft survey data show that capacity utilisation is low. There is plenty of evidence in the hard data too. For example, vehicle sales contracted by nearly 7% in the last fiscal year. The revisions also jar with movements in the current account deficit, which narrowed sharply in FY13/14. Admittedly, this was in part due to the imposition of gold import restrictions as policymakers aimed to fend off a currency crisis. But imports more generally also fell sharply in this period, suggesting a cooling-off in domestic demand. It is extremely rare for an economy to record such as sharp pick-up in growth even as domestic demand slowed so dramatically.

Riaz Haq said...

India’s “new and improved” GDP statistics are asking investors to suspend their disbelief. Revised data suggests that growth zoomed in the year to last March, just as the country tightened fiscal and monetary policies to tame inflation, narrow the current account deficit and prevent a currency crisis. Such a thing has not happened in any major economy in at least three decades.

The new calculations, released on Jan. 30, have moved the measurement of national income closer to international norms. But in doing so, India’s official statisticians have produced a puzzling new version of history: the old numbers put the expansion in output in fiscal 2014 at a pedestrian 4.7 percent. Under the new method, growth that year accelerated to 6.9 percent.

The original number was more realistic, and not just because a second year of sub-5 percent growth played a role in helping opposition leader Narendra Modi become prime minister with a landslide election victory.

In the first quarter of that fiscal year the U.S. Federal Reserve hinted at tapering its quantitative easing programme. The rupee collapsed as investors baulked at financing large external deficits in emerging markets. India had to raise interest rates, restrict gold imports and curb budgetary excesses. Though a cheaper currency helped boost exports somewhat, oil prices were still high. The massive fall in imports couldn’t have taken place without domestic demand taking a hit.

By the end of the fiscal year, India’s dependence on foreign capital inflows had dropped by 3 percentage points of GDP. The amended statistics show the same picture. But this lesson in self-reliance now appears to have been puzzlingly painless. The new calculations show growth accelerating by 1.8 percentage points, from a revised 5.1 percent in fiscal 2013.

That conclusion stretches credulity. No large economy has pulled off such a big improvement in its external balance at the same time as such a handsome pickup in output, according to a Breakingviews analysis of 189 nations over 33 years.

Indian officials will most likely have to revise their conclusions. For now, though, investors will miss the old data. For all its faults, it was a more reliable compass. India’s posh new GDP statistics look too good to be true.

Riaz Haq said...

Late last month, the statistics ministry said it was updating the base year used as the reference point for measuring price changes, as well as incorporating newer, more-comprehensive data into its GDP calculations, which aim to measure the country’s total economic output.
The ministry also shifted its focus to GDP computed at market price, not at factor cost, as its main indicator of economic expansion. Market-price GDP gauges activity by adding up consumers’ and firms’ spending, whereas factor-cost GDP tabulates producers’ costs.
The first growth estimates produced using the new methodology showed growth in the previous fiscal year, which ended last March, well above what was originally announced: 6.9% instead of 4.7%. The size of the economy, however, was relatively unchanged.
That revision seemed difficult to square with the events of that year, in which the threat of tighter monetary policy by the U.S. Federal Reserve roiled emerging markets and provoked emergency intervention by India’s central bank.
Monday’s data included bumped-up estimates of growth for the current fiscal year as well. Growth in the three months that ended in September was revised to 8.2% from the original estimate of 5.3%. And in the quarter before that, the official growth rate was changed to 6.5% from 5.7%, indicating substantial acceleration between those two quarters instead of a slight slowdown as previously estimated.
The latest figures, which describe the economy’s performance since Prime Minister Modi took office last spring, also seem much stronger than what other data imply. Mr. Modi has taken some steps to improve the business environment and streamline bureaucratic procedures. Indian companies announced $64 billion in new investment projects in the fourth quarter of 2014, by one estimate—the highest level in four years.
But they don’t appear to be putting big money on the table yet. Exports in December shrank 3.8% in dollar terms from a year earlier.
Financial constraints are a major reason investment hasn’t picked up. Corporations are burdened with debt and banks are reluctant to lend. Finance officials have said the government budget for the coming fiscal year, which will be unveiled at the end of this month, will likely include substantial investments in railways, roads and housing to compensate for weak investment by private firms.
Such indications of subdued activity have vexed economists trying to understand the new, peppier GDP figures. “We are still trying to connect the dots,” said Dharmakirti Joshi, chief economist at the Mumbai-based rating agency Crisil. He said that for him, the main difficulty for forecasting India’s future growth is that different indicators now paint divergent pictures of manufacturing activity.
For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. The new GDP data, meanwhile, show a 5.3% jump in manufacturing for that year. “There’s a big disconnect,” Mr. Joshi said.

Riaz Haq said...

Pakistan's capital market regulator has published long-awaited rules for the issuance of sukuk, or Islamic bonds, as part of efforts to strengthen governance and broaden their appeal to investors.

The regulator first drafted the rules in October 2012, but efforts have accelerated under a five-year plan that authorities hope will double the industry's share of the banking sector to 20 percent by 2020.

The rules come at a time when issuance of corporate sukuk in Pakistan is gathering pace, helping broaden an Islamic capital market which in recent years has relied on the government for the bulk of such deals.

The current pipeline of sukuk includes utility K-Electric , which is planning a sukuk worth 22 billion rupees ($217 million), which would be Pakistan's largest corporate sukuk to date.

Pakistan Mobile Communications (Mobilink) and Bank Islami Pakistan also plan sukuk of their own.

Under the rules, sukuk will have to be structured to comply with standards of the Bahrain-based Accounting and Auditing Organisation for Islamic Finance Institutions (AAOIFI), as well as those set by the local regulator.

AAOIFI standards indicate how Islamic financial products should be structured; complying with the standards could increase the appeal of sukuk to investors by addressing consumer concerns about their religious authenticity.

The rules require issuers to conduct an annual audit to ensure the sukuk confirms to sharia requirements. Sukuk must also carry a credit rating not lower than triple BBB.

Riaz Haq said...

The Pakistani government expects to raise about $600 million next month selling a stake in Habib Bank Ltd., the nation’s biggest lender by assets, before undertaking deals for electricity distribution companies and Pakistan International Airlines Corp.
The government owns 609 million shares of Habib Bank, or a 42 percent stake, and it will offer a minimum of 250 million shares, Privatization Commission Chairman Mohammad Zubair said in an interview in London on Friday.
“People are taking much more interest because the government is coming up with transactions every two months,” Zubair said.
Prime Minister Nawaz Sharif aims to raise $2 billion from asset sales in the year ending June 30 to meet conditions attached to a $6.6 billion International Monetary Fund loan. He wants to curb his budget deficit and bring greater efficiency to state-owned companies.
Habib Bank shares fell 0.2 percent to 205.05 rupees in Karachi on Feb. 20. The stock has gained 40 percent in the past year, compared with the 33 percent advance in the Karachi Stock Exchange 100 index.
A decision on the discount the shares will be offered at won’t be taken until just before the actual sale in late March, Zubair said. Pakistan sold a stake in United Bank Ltd. last June at a 7 percent discount and shares in Allied Bank Ltd. in December at a 3 percent discount, Zubair said.
Electricity Distribution
His focus then will turn to selling the first of nine state-owned power distribution companies. Zubair said he aims to invite bids for the electric supply company in the city of Faisalabad within about six weeks, with a goal of completing the deal by the end of September.
“There are buyers out there,” Zubair said. Pakistani and Chinese companies are among those who have expressed interest, he said. The appeal of the companies is “clear. There is known demand, and it is growing. The challenge is to collect revenue,” he said.
The intention is to complete the sales of all nine distribution companies by June 2016, Zubair said.
“We believe that unless you take them all together, it would be difficult to complete the process,” he said. Financial advisers already have been appointed for the first four of the companies.
The government also will seek to complete the sale of a stake in Pakistan International Airlines Corp. by March 2016, Zubair said. The transaction will focus only on the “core” airline unit, with other operations such as ground-handling and catering being kept by the state, he said.
The asset sale program experienced a setback when political turmoil and falling oil prices prompted the government to suspend its sale of shares in Oil & Gas Development Co. Ltd. in November. A month later, the government sold an 11.4 percent stake in Allied Bank for $144 million.
“We are well on track to achieve the $2 billion” target for this fiscal year, Zubair said. “When we were given it, we thought it was conservative. Now, it looks much more challenging because a number of transactions got delayed. We expect to achieve it.”
To contact the reporters on this story: Khurrum Anis in Karachi at; Guy Collins in London at
To contact the editors responsible for this story: Arijit Ghosh at Dick Schumacher

Riaz Haq said...

The (Pakistan) government accepted on Monday it had missed economic growth target for this fiscal year because of the underperformance of agriculture and industrial sectors.

The economy grew at the rate of 4.24 per cent as against the projected target of 5.1pc for 2014-15. Last year the target was 4.4pc, but the growth rate was 4.03pc.

The matter was discussed in the meeting of the National Accounts Committee (NAC) held on Monday.

Out of 20 key growth indicators, the NAC documents showed only 10 were on target. In March 2015, the Asian Development Bank Outlook projected moderate growth in Pakistan at 4.2pc in FY15 and 4.5pc for FY16.

The ADB attributed the low growth to slow pace of reforms in energy, taxation and public sector enterprises.

The NAC cited minor crops, livestock, fishery, small-scale manufacturing, slaughtering, construction, general government services, finance and insurance as key drivers of growth in 2014-15.

The growth rate, however, is provisional as final numbers for full year will firm up later. The agriculture sector posted growth of 2.88pc against 3.3pc target in 2014-15. Last year the sector grew by 2.69pc. Major crops recorded a paltry growth of 0.28pc against the target of 1.5pc.

The worrisome factor is that yield of some crops posted negative growth. The wheat production was projected at 25.478 million tonnes for this year as against 25.979 million tonnes last year, a decline of 1.93pc.

The sugarcane yield declined by 7.13pc, maize by 5.04pc during this fiscal over the same period last year.

There is fear that low yield of minor crops could lead to higher food inflation. Livestock, the second largest sub-sector of agriculture, posted a growth of 4.12pc against the target of 3.8pc. The fishery sector expanded 5.75pc as against 0.98pc last year. And forestry exhibited a growth of 3.15pc against a negative growth of 6.74pc last year.

The industrial sector posted a growth of 3.62pc against the target of 6.8pc in 2014-15. Last year it grew by 4.45pc. Of these the mining and quarrying sector recorded a growth of 3.84pc against the target of 6.5pc. The manufacturing recorded a growth of 3.17pc down from 4.46pc last year. The projected target was 6.9pc.

The LSM posted a growth of 2.38pc against the target of 7pc, small-scale manufacturing 8.24pc against the target of 8.4pc and slaughtering 3.32pc against the target of 3.6pc.

The growth in construction sector was 7.05pc compared to 7.25pc last year. And supply of electricity, and gas also depicted a growth of 5pc against a negative growth of 26.38pc last year. The services sector grew at 4.95pc in 2014-15. Last year it grew by 4.37pc.

The major contributors were the general government services, which grew by 9.44pc, finance and insurance 6.18pc, housing services 4pc, transport 4.21pc and wholesale and retail trade 3.38pc this fiscal year over the last year.

Riaz Haq said...

#Pakistan Central Bank Unexpectedly Cuts Benchmark Rate to 42-Year Low via @business

Pakistan’s central bank unexpectedly cut its benchmark interest rate to the lowest in 42 years in an attempt to spur economic growth as inflation slows in the sixth-most populous nation.
The State Bank of Pakistan lowered the discount rate for a fourth straight meeting to 7 percent from 8 percent, central bank Governor Ashraf Mahmood Wathra said Saturday in Islamabad. That’s the lowest since August 1973. Fourteen of 15 economists in a Bloomberg survey predicted a cut to 7.5 percent; one saw a reduction to 7 percent.
Inflation in South Asia’s second-largest economy has eased each month this year as transport and food prices fell, giving the central bank room to boost growth that the International Monetary Fund predicts will be slower than previously forecast.
“They are maintaining the nation’s upward growth strategy” with this cut, Saad Khan, an economist with Karachi-based brokerage Arif Habib Ltd., said by phone. “This is super good news and will help equities rally.”
Pakistan’s benchmark stock index is the third-best performer in the world since 2009, according to data compiled by Bloomberg. Textile shipments make up almost half of the exports in the fourth-largest cotton and rice producer.
Target Rate
The central bank announced a new target for the overnight repo rate at 50 basis points or half a percentage point below the benchmark to better manage liquidity in the interbank market as part of the IMF loan program.
The new rate is part of a band where the benchmark is the ceiling and repo is the floor. The floor rate has been set at 5 percent after reducing the band by 50 basis points, according to a bank statement on the website.
Saturday’s decision came after the IMF this month scaled back Pakistan’s growth forecast for the year through June to 4.1 percent from 4.3 percent and 4.5 percent from 4.7 percent for the following 12 months.
The country is still making “significant progress” in meeting targets under a $6.6 billion loan program and the next tranche of $506 million may be released by mid-June, IMF Pakistan mission chief Harald Finger said this month.
The latest rate reduction will probably be the last for several months as a rebound in oil costs will spark price pressures, economists said.

‘Inflationary Pressures’
“The decision has been taken to spur private-sector borrowing and encourage business activity,” Adeel Ahmed Khan, chief executive officer at BMA Asset Management Co. in Karachi, said before the announcement. “With global oil prices rising, I predict the government now will be faced with inflationary pressures that may force the central bank to hold rates.”
Inflation will average about 4.2 percent in 2015 before accelerating to 5.4 percent in 2016, according to a Bloomberg survey published in April. Consumer prices rose 2.11 percent in April, the slowest rate in Bloomberg data going back to 2009.
Standard & Poor’s and Moody’s Investors Service have raised their outlooks on Pakistan’s credit rating to positive from stable since March. The firms cited Pakistan’s improving financial position and growth prospects as Prime Minister Nawaz Sharif sells state assets and courts Chinese investment to help narrow the budget deficit.

Riaz Haq said...

Jaitley Hails #India's Tax-Free, Job-Rich Informal Economy Estimated At 40% of Official GDP #Modi #BJP via @business

India’s underground economy is booming, and Finance Minister Arun Jaitley wants to keep it that way.
The informal sector is estimated at $780 billion, or about 40 percent of India’s official gross domestic product. It employs more than 90 percent of India’s workforce, according to the government.
“I’m a great supporter of this informal sector," Jaitley said in an interview on Monday. “The informal sector generates more jobs than the organized industry."
The approach goes against the advice of many economists, including those at the International Monetary Fund, which recommends widening the tax net to alleviate India’s chronic shortfalls in fiscal revenue. Indian governments often need to slash infrastructure spending to meet deficit targets that are still among Asia’s highest.
India ranks among the world’s top employers in the informal sector, according to the International Labour Organisation. It puts to work about 400 million people -- more than the entire U.S. population.
In India, it’s nearly impossible to avoid. Retail stores offer discounts for customers if they pay cash, and landlords often take a portion of the monthly rent in stacks of 1,000-rupee notes. Back-alley hawalas transfer billions of dollars around the globe with no questions asked, and thousands of unregistered and underpaid chauffeurs and housemaids don’t file annual income declarations.
“The black economy is growing faster than the white economy and everybody is involved -- the entire country," said Arun Kumar, author of “The Black Economy in India," who came up with the $780 billion estimate by looking at wages, under-the-table transactions and cash-based real estate sales. “This isn’t just a problem among the wealthy -- almost everyone with disposable income participates in the black economy and it’s accepted."

Total corporate and personal income tax payers in India amount to about 40 million -- roughly 3 percent of the country’s 1.2 billion people. To expand that, a Finance Ministry-created panel suggested putting levies on farmers in the untaxed rural sector who make more than 5 million rupees ($76,000) per year -- an approach backed by the IMF.
“We think there’s scope to bring the fiscal deficit down in particular with the revenue side," said Thomas Richardson, the resident representative of the IMF in India. “It’s really a task of widening the tax net -- not raising rates, but bringing more people into the tax net."
“Neo-Middle Class"
Jaitley, for one, rejects that idea. Most farmers don’t make much money anyway, he said, and the rest could use the extra cash.
“We need to strengthen the neo-middle class and put more money in their pockets," Jaitley said. “So bringing tax violators into the tax net, yes, but bringing people with marginal incomes into the tax net -- I’m not so excited about it at all."
Instead, Jaitley wants to finance them. This year the government started a program to boost lending to small entrepreneurs like shopkeepers, fruits and vegetable vendors and artisans. Government-run banks have so far disbursed nearly $6 billion in increments of as much as about $15,000.
Part of the problem is India’s strict labor laws for companies with more than 100 employees. They incentivize businesses to stay small, leaving workers with few rights. The government so far has tweaked only a few minor labor laws, and it’s unclear when they will push for more changes.
While Jaitley this year is again struggling to raise revenue, he’s confident he’ll hit his deficit target of 3.9 percent of GDP without slashing funds for roads, bridges and ports. Shortfalls in direct taxes and state assets sales will be compensated by higher-than-expected indirect taxes -- including payments on services and exports.

Riaz Haq said...

Over last two years: #Pakistan’s food, beverage exports to #UAE increase 27% …

Pakistan’s food and beverage exports to the United Arab Emirates (UAE) have increased 27% in the last three years, making it an area worthy of attention after textiles, said the consul general of Pakistan in Dubai.

While rice remains the country’s top export commodity to the Emirates, the food segment remains a potential area as Pakistan continues its fight to increase foreign exchange revenue through exports.

“Pakistan’s food and agro-products exports touched $0.5 billion last year compared to 2012’s number of $362.4 million,” said Commercial Counsellor of Dubai Consulate Saeed Qadir, adding that Pakistan had boosted sale of its traditional agricultural products and expanded reach into areas such as processed meat and poultry products, tea, concentrated milk and cream, certain fruits and vegetables, spices, herbs and confectionaries.

Rice remains Pakistan’s leading food export to the UAE. According to TDAP figures, Pakistan’s rice sales jumped 11 fold to $207.8 million compared to the last two years. Meat and processed frozen food exports crossed the $100 million mark in the last three years.

As for fruits and vegetables, exports increased over 100% in three years. Sales of dried fruits and vegetables to the UAE rose to $9.7 million and $7.8 million, respectively. Exports of potatoes reached $5.9 million last year – an eight-fold increase compared to the 2012 figures, while fresh and frozen meat exports crossed the $50 million mark.

“Moreover, for this sector, there awaits a major export push as more than 90 Pakistani companies are taking part in the Gulfood 2016; the world’s largest annual food and hospitality trade platform, scheduled in Dubai later this month,” said the CG.

“In this exhibition, Pakistani exhibitors will be looking to source new buyers for a wide range of Pakistani food and agro sector products including fresh and frozen foods, rice, fruits and vegetables, sauces, nuts, sweets, confectionery and tea,” said Consulate General of Pakistan, Dubai Consul General Javed Jalil Khattak.

“Buyers can leverage Pakistan’s cost-competitiveness, lower transport costs and delivery time, and the quality, freshness, taste and aroma of our diverse produce”, he added.

The Pakistan pavilion at Gulfood 2016 will feature among 117 national and trade association pavilions. There will also be a first-time group participation from Russia, Costa Rica, Belarus, Mauritius and New Zealand (returning after a six-year break). In all, some 5,000 international companies from 120 countries and more than 85,000 food and beverage, wholesale, retail, distribution and hospitality professionals from five continents will take part in the event.

Data released by global macroeconomic research firm, BMI International, shows that Pakistan remains a buoyant market for consumer sales and food and beverage investment. The firm is forecasting a 9.9% per capita compound annual growth rate (CAGR) in food consumption until 2019, a 3.2% per capita CAGR growth in domestic soft drinks sales and 9.5% per capital CAGR in mass grocery retail sales.

“There are enormous business opportunities emerging in Pakistan for both food and beverage imports and exports, as evident by the recent international investment in manufacturing plants in Karachi, Multan and Islamabad,” explained the Exhibitions and Events Management Dubai World Trade Centre Senior Vice President Trixie Lohmirmand.

Riaz Haq said...

#Netherland's FrieslandCampina International Holding BV to buy #Pakistan's #Engro Foods for $460 million. …

A Dutch dairy cooperative is set to buy out a Pakistani food giant with an investment of around $460 million, in what would amount to the largest private sector takeover by a foreign firm in the country’s history.

FrieslandCampina International Holding BV intends to acquire a 51 per cent stake of Engro Foods Limited, one of the largest listed companies at the benchmark Pakistan Stock Exchange (PSX), a notification on the bourse’s website said Thursday.

The deal would bring in a minimum investment of $460 million based on the Pakistani firm’s present stock value.

Engro Foods’ 2015 profit up 256%

“Yes, it is the largest ever deal in the private sector,” analyst Faisal Shaji, head of research at Standard Capital Securities, said.

Citibank Pakistan is the financial advisor.

Shahji added the deal would be closely watched by international investors eyeing the emerging South Asian economy.

“Pakistan is already in the radar range of the world corporate sector and this deal further lifts its image outside,” he said.

If finalised the Dutch takeover would boost Pakistan’s foreign direct investment statistics.

FDI was down by 57 per cent to $336 million in Pakistan for the first seven months of the current financial year compared to the corresponding period in the last financial year ending June 2015.

Pakistan expects its economy to grow by 4.5 percent for the 2015-16 financial year due to lower oil prices, planned improvements in the energy supply, investment related to the China Pakistan Economic Corridor (CPEC), buoyant construction activity, and acceleration of credit growth.

Riaz Haq said...

From United Nations Industrial Development Organization (UNIDO):

Pakistan Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$135.03 in 2005 to $143.84 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 18.05% in 2005 to 17.41% in 2014

India Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$155.73 in 2005 to $168.42 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 15.10% in 2005 to 13.85% in 2014

China tops the list of world's 10 largest industrial producers. It is followed by the US, Japan, Germany and South Korea, according to United Nations Industrial Organization (UNIDO).

India ranks 6th in the world in terms of total manufacturing output in 2013, up from 9th place in 2008,

India's manufacturing value added (MVA) per capita of 161.7 in 2013 is among the lowest in the world. It's up from 131.9 in 2008.

In fact India's 2008 MVA per capita of 131.9 was lower than Pakistan's 141.1. Since 2008, Pakistan's MVA per capita has slipped to 139.1 in 2013 while India's has increased to 161.7 in this period.

Bangladesh's MVA per capita has jumped from 82.2 in 2008 to 118.3 in 2013.

On UNIDO’s industrial competitiveness index, most industrialized countries lost ground in the last three years. Among the five most competitive are four high-income countries (Germany, Japan, the Republic of Korea and the United States), along with China ranking fifth. The four are among the world’s most industrialized countries and, with China, account for 59 percent of world MVA.

Riaz Haq said...

Shadow Economies All over the World
New Estimates for 162 Countries from 1999 to 2007
Friedrich Schneider
Andreas Buehn
Claudio E. Montenegro

Pakistan's shadow economy estimated at 36%

Activities associated with shadow economies are facts of life around the world. Most societies
attempt to control these activities through various measures such as punishment, prosecution,
economic growth or education. To more effectively and efficiently allocate resources, it is
crucial for a country to gather information about the extent of the shadow economy, its
magnitude, who is engaged in underground activities, and the frequency of these activities.
Unfortunately, it is very difficult to get accurate information about shadow economy
activities, including the goods and labor involved, because individuals engaged in these
activities do not wish to be identified. Hence, doing research in this area can be considered a
scientific passion for “knowing the unknown.”
Although substantial literature5
exists on single aspects of the hidden or shadow economy and
comprehensive surveys have been written by Schneider and Enste (2000), and Feld and
Schneider (2009), the subject is still quite controversial as there are disagreements about the
definition of shadow economy activities, estimation procedures utilized, and the use of their
estimates in economic and policy analysis.6
Nevertheless, there are some indications that the
shadow economy has grown around the world, but little is known about the development and
the size of the shadow economies in developing Eastern European and Central Asian (mostly
former transition) countries, and high income OECD countries over the period 1999 to
2006/2007. The period was chosen as it has the most comprehensive data availability. This
study is an attempt to fill this gap by using the same estimation technique and almost the same
data sample used in Schneider and Buehn (2009) and Schneider and Enste (2000).
Therefore, the goal of this paper is twofold: (i) to undertake the challenging task of estimating
the shadow economy for 162 countries in various stages of development and located in
several regions throughout the world7
and (ii) to provide some insights about the main causes
of the shadow economy. To our knowledge, such an attempt has not been undertaken so far;
hence, we provide a unique database of the size and trends of the shadow economy in 162
countries over the period 1999 to 2006/2007. This is an improvement compared to previous
work – we used the MIMIC (Multiple Indicators Multiple Causes) estimation method for all
countries, thus creating a unique data set that allows us to compare shadow economy data.

Riaz Haq said...

#India's cash economy - Why #Modi wiped out 86% of its cash overnight? #DeMonetisation #corruption

India is in the middle of an extraordinary economic experiment.
On 8 November, Prime Minister Narendra Modi gave only four hours' notice that virtually all the cash in the world's seventh-largest economy would be effectively worthless.

The Indian government likes to use the technical term "demonetisation" to describe the move, which makes it sound rather dull. It isn't. This is the economic equivalent of "shock and awe".

Do not believe reports that this is primarily about bribery or terror financing, the real target is tax evasion and the policy is very daring indeed.
You can see the effects outside every bank in the country. I am in Tamil Nadu in the south of India and here, as in every other state in the country, queues of people clutching wads of currency stretch halfway down the street.

Mr Modi's "shock and awe" declaration meant that 1,000 and 500 rupee notes would no longer be valid.
These may be the largest denomination Indian notes but they are not high value by international standards - 1,000 rupees is only £12. But together the two notes represent 86% of the currency in circulation.
Think of that, at a stroke 86% of the cash in India now cannot be used.
What is more, India is overwhelmingly a cash economy, with 90% of all transactions taking place that way.
And that is the target of Mr Modi's dramatic move. Because so much business is done in cash, very few people pay tax on the money they earn.
According to figures published by the government earlier this year, in 2013 only 1% of the population paid any income tax at all.
As a result huge numbers of Indians have stashes of tax-free cash hidden away - known here as "black money".
Even the very poorest Indians have some cash savings - maybe just a few thousand rupees stored away for a daughter's wedding, the kids' school fees or - heaven forbid - an illness in the family.

But lots of Indians have much more than that.
It is not unusual for half the value of a property transaction to be paid in cash, with buyers turning up with suitcases full of 1,000 rupee notes.
The size of this shadow economy is reckoned to be as much as 20% of India's entire GDP.
Mr Modi's demonetisation is designed to drive black money out of the shadows.
At the moment you can exchange up to 4,000 (£48) of the old rupees every day in cash for new 500 (£6) and 2,000 (£24) rupee notes.
There is no limit to the amount that can be deposited in bank accounts until the end of December, but the government has warned that the tax authorities will be investigating any deposits above 250,000 rupees (£2,962).
Breach that limit and you will be asked to prove that you have paid tax. If you cannot, you will be charged the full amount owed, plus a fine of 200% of the tax owed. For many people that could amount to be pretty much the full value of their hidden cash.
This is brave politics. Some of the hardest hit will be the small business people and traders who are Mr Modi's core constituency. They voted for him because they believed he was the best bet to grow the economy and improve their lot. They will not be happy if he destroys their savings.

Riaz Haq said...

Int'l #consumer giant #ProctorGamble CEO expresses strong commitment to #Pakistan #economy … via @Pakistan Observer

P&G Chairman of the Board, President and Chief Executive Officer, David Taylor met the Prime Minister of Pakistan, Mr. Mohammad Nawaz Sharif in Davos on the sidelines of the recent World Economic Forum confirming P&G’s commitment to serve Pakistani consumers and expressing optimism about the potential and business climate of Pakistan. David Taylor shared with the Prime Minister facts about P&G’s operations in Pakistan which has enabled P&G to celebrate 25 years of its presence in the country with great success.
He said P&G’s presence in Pakistan is strong and getting stronger. Since its first shipment in Pakistan in August 1991, P&G has grown to be amongst the top fast moving consumer goods companies in Pakistan and has launched premium quality brands which are amongst leading household names in their categories. “For the past 25 years, we have improved Pakistani lives through P&G’s iconic and consumer-preferred brands, our investment in local manufacturing facilities, the creation of direct and indirect employment, and our contributions to help communities in need.
With the potential Pakistan has to offer as well as the strong partnership we enjoy with the both the Government of Pakistan and local retailers, we remain committed to serving Pakistani consumers in the years ahead.”

Riaz Haq said...

#Tesco tests waters in #Pakistan with Alpha #Supermarkets tie-up. Plans 50+ stores via @Reuters

Britain's biggest retailer Tesco (TSCO.L) will stock its products at a Pakistani supermarket chain, a Tesco official said on Thursday, dipping its toes in a country of nearly 200 million with rising consumer spending and a growing middle class.

Tesco has been expanding rapidly in emerging markets to bolster sluggish growth in western Europe and is among a growing band of companies attracted by Pakistan's fast-growing consumer market, encouraged by the highest economic growth since 2008 and improved security.

"We have agreed on a wholesale partnership with Alpha Supermarkets in Pakistan, under which Tesco products will be stocked at two of its stores," Jared Lebel, head of new market development at Tesco, told Reuters.

He said that Limestone Private Limited, which owns the Alpha Superstores chain, planned to open 50 smaller express stores and four Alpha stores stocking Tesco products within the next three years.

"We are excited about Pakistan as a market," Lebel said. "A big factor in coming to Pakistan is rising consumer spending."

A spokesman for Tesco in London said: "We're looking forward to seeing how customers respond."

Fauzia Khuhro, head of business development at Limestone, told Reuters that Tesco products would hit its shelves in about 10 days.

"Alpha Supermarkets will be the only retailer in Pakistan that stocks Tesco private-label products," Khuhro said. "We will offer a complete range of Tesco product categories, from food and non-food items to frozen and fresh foods."

Tesco's partnership with Alpha Supermarkets was announced by British High Commissioner Thomas Drew and Limestone at a press briefing in Karachi on Tuesday.

Riaz Haq said...

From being world leader in surveys, #India is now facing a serious #data problem: NSS #GDP estimate half of CSO's

The National Sample Survey (NSS), when launched by the NSSO in 1949, was the most ambitious household survey in the world, covering over 1,800 villages and over 100,000 households across India. The methods used by the NSS became the standard for household surveys the world over.

For example, the use of inter-penetrating samples — essentially, two independent samples drawn from the same population — to test the reliability of the survey results, was developed by Mahalanobis in a 1936 paper and remains a standard tool for survey design. The Living Standard Measurement Surveys the World Bank still carries out in many countries are a direct descendent of the NSS.

We quibble about whether growth was 7.1% or 7.4%, ignoring the fact that our two main sources of official consumption data, the NSS and the GDP data produced by the Central Statistical Organisation (CSO), now tell entirely different stories.
If you believe the NSS, GDP could be just about half of what it is according to the CSO. There are occasional academic debates about which one is correct, which no one in power pays any attention to. And yet, it is almost surely true that both estimates (and their growth rates) are off by a huge margin. More worrying, this divergence has been known for nearly 50 years (though it has grown a lot).

And though we are occasionally told that the NSS is understaffed, or that no one knows where the CSO got a particular number, there is absolutely no political interest in improving things. From being the world leader in surveys, we are now one of the countries with a serious data problem while people talk about the really good data you can get in Indonesia or Brazil or even Pakistan.

Riaz Haq said...

5 Most Profitable Business Sectors in Pakistan:

Pakistan business sector is growing fast, a country with 193.2 million estimated population in 2016 has shown strong growth in the past five years which is expected to grow further. A study published by Harvard indicates that Pakistan’s economic growth will surpass China’s in the next 20 years, growth statistics and current development in the country including China Pakistan Economic Corridor CPEC attracts more businesses to invest in Pakistan from across the globe. Recently, France, United Kingdom, Turkey and China has shown special interest to start bilateral trade with Pakistan and private sector companies from these countries are also leapfrogging to make considerable investments in Pakistan.

Despite, these are many sectors in Pakistan that are underdeveloped but these five sectors including; FMCG, Chemicals and Fertilizers, Automotive, Textile and Energy/Petroleum are the most growing and profitable in Pakistan.

The data acquired from Karachi Stock Exchange KSE from 2013 to 2017 indicates that top companies who performed well are from the above five sectors. The companies witnessed strong growth and profitability over the four years.


FMCG is the most lucrative and huge business sector in Pakistan, companies that are consistently growing and becoming more profitable includes; Colgate Palmolive, Unilever, Nestle and Engro Foods. The market is huge and still in growing stage whereas industry has few multinational players covering the whole market.

2 Chemicals and Fertilizers

“Chemicals and fertilizers” is another big sector which caters even bigger market, companies like ICI Pakistan, Fauji Fertilizer, Engro Fertilizers and Chemicals, Abbot, Lucky Cement and some other are dominating the market with strong growth over time and profitability.

3 Automotive

The automotive industry in Pakistan forms oligopoly, global players like Toyota, Honda and Suzuki dominates the market. However, Pakistan has allowed other automakers to setup car assembly plants in Pakistan, increasing disposable income and the transport needs in the country make the market more attractive, potential and profitable.

4 Textile

Pakistan’s textile industry is popular in all over the world; however, due to lesser facilities and government support Pakistan is not able to streamline its textile growth but the textile industry accounts for 57% of the country overall exports. There are several companies in this sector including Premium Textile and Din Textile that are quite lucrative.

5 Energy/Petroleum

Where there are people there is a need for energy in all segments of life whether you are at home, traveling, working, playing and having leisure energy and petroleum products are inevitable, Pakistan’s energy and petroleum needs are growing rapidly, it is estimated that Pakistan’s energy needs will surpass 50,000 MW by 2025. Petroleum and energy sector in Pakistan is expected to grow further and become more profitable in the future.

Riaz Haq said...

Unilever announces fresh $120 million investment in Pakistan

Pakistan’s fast-moving consumer goods segment is set to see fresh investment after Unilever Plc – a Dutch consumer goods giant – announced foreign direct investment (FDI) of $120 million (Rs11 billion) for expansion of its operations in the country over the next two years.

The announcement comes as a welcome sign for Pakistan that has suffered from low levels of FDI in recent years.

“A majority of the investment will be made to enhance manufacturing operations across Unilever’s four factories in Pakistan over the next two years,” a statement quoted the company as saying on Monday.

The company manufactures about 30 brands in the areas of home care, personal care, foods, beverages and ice cream in Pakistan.

“Unilever is aiming to make it (Unilever Pakistan) a billion-euro firm next year (by December 2019) from 800-810 million euros (in revenues) at present,” company’s Senior Manager Corporate Affairs Hussain Ali Talib told The Express Tribune.

“In 2013, Unilever Overseas Holdings, which is a majority shareholder in Unilever Pakistan Limited, invested over €400 million ($530 million) in Pakistan, which is the single largest foreign direct investment in the recent history of Pakistan,” the statement said.

It called Unilever’s operations in Pakistan amongst the best performing business units within Unilever’s global operations. “The new investment reaffirmed Unilever’s strong commitment to local operations and to Pakistan’s economic potential,” it said.

The announcement about the investment was made by a delegation of Unilever Pakistan in a meeting with Adviser to the Prime Minister on Finance Miftah Ismail.

“The investment is indeed an acknowledgement of the country’s growth potential and the macroeconomic stability it has gained over the last four years,” the statement quoted Ismail as saying.

The planned investment supports Pakistan’s narration of being a growing economy with over 70 million middle-class population out of a total of over 200 million.

Pakistan has been on the radar of foreign investors over the past couple of years. FDI increased 15.6% to $1.94 billion in the first eight months (July 2017 to February 2018) of the current fiscal year from $1.68 billion in the same period of previous year, according to the State Bank of Pakistan.

Overseas Investors Chamber of Commerce and Industry Secretary General M Abdul Aleem recently said many European investors in the auto, infrastructure and liquefied natural gas (LNG) import terminal sectors would make major investment decisions for Pakistan in the near future.

Some of them were waiting for regulatory approvals to initiate the investment process in Pakistan, he said.

Stability in Pakistan integral to China’s development, reiterates Chineseambassador

“Pakistan carries a huge potential to grow. Investment climate will be much better in the post-election period,” he emphasised, adding “FDI may total around $3 billion this fiscal year.”

In the previous fiscal year 2016-17, the country had received $2.73 billion in FDI.

Unilever Pakistan CEO Shazia Syed said “we have been part of Pakistan’s growth for nearly 70 years, during which time we have seen our business grow to over 30 brands…we take pride that over 95% of our brands are produced locally, creating employment for thousands, contributing to the exchequer and simultaneously creating a better future every day for the people of Pakistan.”

Riaz Haq said...

Printing Industry Highlights

The global market for printing is forecast to US$ 898 billion.
Asia contributes 39% which is estimated at US$ 350 billion.
Pakistan’s estimated Print Market is around US$ 4.5 billion.
(Paper & Board US$ 2.75bn, Flexible US$ 1.5bn and Machineries & Others US$ 0.25bn)
Printing & Graphic Art Industry caters to & serves diverse sectors :
Financial Sector Education
Pharmaceutical, Food & etc.
In Pakistan, PAPGAI is the only representative body and is registered with Ministry of Trade & Commerce and incorporated with Security Exchange Commission of Pakistan.

Riaz Haq said...

Pakistan has changed a lot since the last time the GDP was rebased. There are many new sectors and categories of products such as fmcg and services like data services being offered to meet the demand of the growing middle class. These products and services are currently left out of the official GDP calculation. Just rebasing the GDP to 2015 will result in significant upward revision.

Riaz Haq said...

A base year is a benchmark with reference to which national account figures such as GDP, gross domestic saving and gross capital formation are calculated.

According to the new base year, Bangladesh was an economy of Tk 34,840 billion in current prices in FY21, up 15.7 per cent from Tk 30,111 billion as per the previous base year.

"The size of our economy is huge, and the new base year will reflect it," he said, adding that a real scenario would allow the government to make more informed policy decisions.

Zahid Hussain, a former chief economist of the World Bank's Dhaka office, also welcomed the new base year.

He said timely revisions to data on GDP and its components determine the accuracy of national account estimates and their comparability across countries.

With the finalisation of the new series, Bangladesh will be ahead of all other Saarc countries in terms of the recency of the national account's base year.

Only the Maldives (2014) and India (2011-12) come close, while Pakistan (2005-06) and Sri Lanka (2010) are well behind.

"Improved data sources increase the coverage of economic activities as new weights for growing industries reflect their contributions to the economy more accurately," said Hussain.

The last revision was done in 2013.

The size of the agriculture, industry and services sectors has expanded as per the new base year.

The new base year uses data on about 144 crops while computing the contribution of the agriculture sector to the GDP, which was 124 crops in the previous base year.

The gross value addition by the agriculture sector rose to Tk 4,061 billion in current prices in the last fiscal year, up from Tk 3,846 billion in the old estimate, the BBS document showed.

The industrial sector saw the addition of the data on the outputs of Ashuganj Power Station Company, North-West Power Generation Company, Rural Power Company, cold storage for food preservation, Rajshahi Wasa, and the ship-breaking industry.

Riaz Haq said...

GDP rebasing: no more delays!
BR Research Updated 27 Aug 2021

There is little doubt that the size of Pakistan’s economy is understated. Many economic indictors such as per capita income and debt levels depict bleaker picture than the situation on the ground reflects. When size of the economy is understated, it makes debt to GDP ratio appear unsustainable, in turn weakening government’s bargaining power with lenders such as IMF.

One strong indicator about economic activities in any economy is national electricity consumption. Most readers would be surprise to find out that per capita grid electricity sales are 25-30 percent higher in Pakistan than in Bangladesh. Many commentators point out that GDP per capita has become higher in Bangladesh over the last decade. But it is pertinent to note that while electricity consumption is based on actual data, GDP of any economy is based on many assumptions and estimates and is based on the level of documentation in any economy. Ergo, it would appear that the level of documentation in Bangladesh is significantly higher in Bangladesh than in Pakistan.

Yet, infrastructure and construction actives are significantly greater in Pakistan than in Bangladesh. Domestic annual cement sales in Pakistan are at 48 million tons against 33 million tons in Bangladesh; in per capita terms, the spending is 10 percent higher in Pakistan. Existing road infrastructure is also of better quality and much more extensive in Pakistan (although latter may also be an indicator of greater geographic area). Similarly, number of passenger vehicles in Pakistan – including much more pertinent, vehicle per 1000 persons – is also higher.

The purpose, of course, is not to undermine the economic performance of Bangladesh, and the significant gains made by that country in past two decades. However, it is equally important to engage in undercutting ourselves. Anecdotal evidence suggests that the widely held perceptions of smaller size of economy – exacerbated by lower growth rate in recent years – also contributes to brain drain; as skilled workers seek opportunities elsewhere due to bleak outlook.

Pakistan conducted its last GDP rebasing exercise in 2005-06. GDP rebasing becomes due every ten years, yet it has been much delayed since. Since the PTI government took office, work has been undertaken on the same for the last two years. Yet, the problem is that the post of chief statistician has been vacant for over three years. There are many sectors which have experienced mushroom growth since the last rebasing exercise was completed, and they are not fully recorded in GDP. For example, the value addition segment of textile industry is not recorded in official GDP. Similarly, packaging across many industries is not included. Economic activities is simply much greater than what the official estimation represents.

Then the undocumented cash economy is also growing fast. The velocity of money (computed as nominal GDP divided by broad money – M2) is down from the average of 2.6 during FY10-14 to 2.1 percent during FY17-21. The velocity in any country doesn’t change so abruptly. The catch lies in clamping down on cash economy. The currency in circulation kept on growing since 2015, and falling velocity implies that cash is not coming back into the system. It is turning into a mini-economy unto its own.

The excess average annual CIC (difference between the average CIC/M2 ratio in FY18-21 at 28% to FY10-15 ratio at 22%), of Rs1.2 trillion could have generated undocumented GDP of Rs3.1 trillion at the historic velocity of 2.6. In comparison to Bangladesh (CIC/M2 at 13%), Pakistan’s cash economy is double the size.

Planning ministry must bring life to the Bureaus of Statistics (PBS) and speed up GDP rebasing. Once its done, apples can be compared to apples, which can also help restore Pakistan’s negotiating position with global lenders.

Riaz Haq said...

THE size of Pakistan’s informal economy is estimated to be as much as 56 per cent of the country’s GDP (as of 2019). This means that it’s worth around $180 billion a year, and that is a massive amount by any yardstick. by LalaRukh Ejaz IBA Karachi Professor

The country’s large black economy is inextricably linked to the levels and quality of governance exercised by the state. In the course of fieldwork for my doctoral research for the University of Southampton, I found that many Pakistani women who were setting out starting their own businesses did so in the informal sector. The reasons they gave usually related to their experience of dealing with the bureaucracy and government machinery in Pakistan which they found to be dominated by red tape and tedious and complicated procedures.

This is precisely what drives many people who want to engage in economic activity towards the undocumented economy. The headache of having to deal with a large bureaucracy, of complying with complicated and long registration procedures, of getting approvals and licences from various government agencies and departments make it difficult for most people to operate within a documented framework.

A large black economy is an indication of misgovernance and indicates a failure of the government to ensure that all businesses and entrepreneurial ventures are included in the formal sector. This failure in turn leads to reduced tax revenue collection since all entities outside of the formal economy do not pay any tax to the government.

Pakistan’s black economy is linked to governance.

Given that the size of the black and informal economy is estimated at over half of the country’s GDP, bringing it under the documented net would bring hundreds of billions in tax revenue. Those funds would then be spent on social sector development projects and help the FBR meet its annual revenue collection targets.

The solution is to increase the size of the formal economy and this can be done by making transparent and efficient those institutions tasked with registering and regulating businesses. Instead of harassing businesses and entrepreneurs, agencies like the FBR should act as facilitators and make it easier for new ventures to be registered and come under the documentation net. This would in turn be good for the FBR because achieving the tax collection target would be easier than if they were in the black economy.

Government requirements for new businesses are linked to the general level of governance. A state whose primary aim is to improve the lives of its citizens will prioritise good governance over all other things and will formulate and implement policies that enable this. In fact, such a state will also be able to realise that having such priorities ends up helping it as well, not least because a happy populace is a more economically productive populace.

Unfortunately, in a country like Pakistan, so far, this has not been the case. A multitude of licences and permissions are required from a wide variety of federal, provincial and local government departments to operate a business or a store. Having to comply with all of these requires not only a lot of time on the part of the entrepreneur but also funds for greasing the cogs of the bureaucratic machinery that regulates businesses and commercial enterprises in Pakistan.

The result of this is that a significantly growing number of entrepreneurs, and especially those that happen to be female, are increasingly veering towards the informal sector. This is both good and bad — good because it enables economic activity to take place, and jobs to be created, away from the unwanted glare of government inspectors and officialdom, and bad because the incomes generated from such activity don’t end up getting counted in the national GDP and nor are taxes paid on it.