A country that has huge energy problems, has a deteriorating industry, weak services sector, a huge population of unemployed workforce and a vast unaccounted for informal sector of the economy, cannot possibly generate a 4.7 percent of growth rate especially when investors find the country to be dangerous for their investment
A mathematician, a statistician and an economist apply for the same job. The interviewer asks the mathematician, “What’s two plus two?” the mathematician replies, “four”. Then the interviewer calls in the statistician and asks the same question. the statistician says, “on average, four — give or take ten percent.” Then the interviewer calls in the economist, and asks “what does two plus two equal?” The economist locks the door, leans close to the interviewer and whispers, “what do you want it to equal?” Tim Harford mentions this joke in his acclaimed book entitled The Undercover Economist Strikes Back: How to Run or Ruin an Economy.
This little anecdote precisely explains the reservations Dr Hafiz Pasha has over the 4.7 percent growth rate that the Pakistan Bureau of Statistics has released. The growth numbers are exaggerated every year during the preparation of the federal budget in order to veil the inability of the government to catalyse the economic growth process of the country. In order to explain how the process of budget formation undergoes it is important to explain it through an experience.
The formation of ruling party’s flagship program Pakistan Vision 2025 can serve as a premium example for this process. The initial draft of the program was formulated by the regular employees of the ministry of planning, development and reform, and just three months before the scheduled launch of the Vision 2025 were hired two “experts” to work on it. One of the experts was from Nestle, corporate sector organisation and the other one was from Ernest and Young, a tax and assurance consultancy agency. These experts have had no prior experience of devising a long term, socioeconomic development plan and neither did they have any academic or development research experience which one would assume should be a necessary condition for anyone chalking down a long term development plan. These experts were also given two young development fellows to assist them during the process. When the Ernst and Young consultant asked one of the YDFs to project the growth percentage for 2025 after the implementation of the vision, he did what a researcher would do and did the growth projections through a statistical analysis software and gave the number of 4.1 percent growth rate in 2025, to which the EY consultant said “Beta, make it seven percent”, the YDF well aware of his limitations exclaimed “Sir, I possibly cannot, the data reflects otherwise and this number of seven percent suggest an economic miracle which can only come through heavy industrialisation and for that a 100 percent elimination of the energy crisis is required, and the data and the vision doesn’t ensure either of them”. He replied in the most authoritarian of manner, “Beta, make it happen, no one is going to go through the data and projections”. On refusing to do so the YDF was removed from the team and the final document of the Pakistan Vision 2025 showed a GDP growth rate of 7-8pc by 2025.
The process of budget formation goes through the same alterations in order to fool the general public in a greater scheme of events. The personnel entrusted with formation of the budget and key statistics have neither the expertise to do so nor are they acquainted with the tools (statistical analysis packages) to do their job. As a result the most important plans and budgets of the year; be it the provincial or federal budgets, or be it the annual development plans or the long term development plans, are formalised on the basis of guessing and pleasing the ruling politicians.
A country that has huge energy problems, has a deteriorating industry, weak services sector, a huge population of unemployed workforce and a vast unaccounted for informal sector of the economy, cannot possibly generate a 4.7 percent of growth rate especially when investors find the country to be dangerous for their investment, when the trade volume has been the lowest and even the textile industry in which once the country specialised has been shifted to Bangladesh and when the country’s technology industry is not as growing as it should be. The budget numbers that are given for the following year are based on the performance of the prior year and if the numbers of the prior year are fabricated then this vicious cycle continues to haunt and the budget and its numbers has no real implication on the economy whatsoever.
A budget that looks at the economic needs of the entire population for a fiscal year cannot do it properly if a country hasn’t conducted a census since 1998 and has no valid estimates to either what are the real population numbers of the country or the distribution of the population; in such a case a country cannot possibly form an accurate budget especially when a budget includes financing for education and health. How can you release education finance when you have no idea how much of the population you are targeting? How can you release a health budget when you have no idea how many people are there who might one day need to avail the hospitals?
A budget that looks at the economic needs of the entire population for a fiscal year cannot do it properly if a country hasn’t conducted a census since 1998 and has no valid estimates to either what are the real population numbers of the country or the distribution of the population
It is high time that the process of budget formalisation changes; first thing first, the country needs to carry out a census in order to actually know how many of us inhabit this country, secondly and most importantly there should be a change in people who are entrusted with formulating the budget. Pakistan homes a lot of excellent economists, statisticians and mathematicians who are internationally acclaimed and know what they are doing. In order for Pakistan to really become Roshan Pakistan and achieve a growth rate of seven percent we need to give this job of planning and devising plans and budgets to people who have expertise of doing so. It is time that actual growth numbers and actual projections are carried out rather than what the government wants the so called economists to project.