The data controversyArchive
OFFICIAL statistics are a public trust. Much of the edifice (if not all) of government policy effort and action should be rested on the foundations of accurate, credible, transparent, accountable and timely data. But too often, and perhaps increasingly so, governments around the world are manipulating economic data, hence potentially severely undermining the responsiveness of the state to the challenges faced by the economy and needs of its citizens.
Fudging official national statistics and ‘massaging’ the data have become more widespread and prevalent since the early 2000s with the start of what I have dubbed previously as the global ‘Growth Olympics’. In a somewhat toxic combination of national pride and international competition for foreign direct investment, countries across the emerging markets universe have made a dash for inflating the size of their economy – and reporting eye-catching, headline-popping GDP growth rates. China, Nigeria, Brazil are among a handful of countries that have made large adjustments to the size of their economies in the past 10 years or so. Nigeria’s case appears to be the most remarkable, where the official size of the economy rose as a result of re-basing by nearly 90 per cent in 2014, making it the largest economy in Africa ahead of South Africa.
The more recent point of international discussion is the headline GDP growth rates being posted by China and India over the past two to three years. China has experienced a severe slowdown in its economy which is being captured by a wide variety of indicators such as industrial electricity consumption, import of raw materials, steel production, housing prices, and proxies such as purchasing managers’ indices. While most independent estimates place the current pace of economic expansion in China at around 4-5pc at best, the official figure for the first three months of this year is 6.7pc.
India’s official rate of economic growth for the same period is a remarkable 7.9pc – but it too is based on a revised methodology which has been widely criticised, including by the respected, recently resigned Reserve Bank of India governor Raghuram Rajan. Like China, a wide range of economic activity indicators do not support the rapid expansion of India’s economy portended by the official data.
Economic growth rates are not the only official data category that is prone to manipulation by governments keen to show ‘performance’ and ‘delivery’. In a similar vein, governments are enthusiastic about suppressing the poverty and unemployment numbers for domestic political reasons, while figures relating to the fiscal deficit and public debt – both of which are a charge on the economic well-being of future generations – can be uncomfortable and hence the subject of some official ‘treatment’. In the case of poverty, India’s setting of its national poverty line at Rs32 per day (rural) is an example of how the results can be tweaked using definitions rather than outright manipulation. In the case of other economic parameters, Russia overstated its official forex reserves in the late 1990s, while Greece is accused of lowering its public debt through creative accounting to become eligible for EU membership.
Pakistan, unfortunately, has had its fair share of data quality and credibility issues. The basis for undermining the integrity of official statistics was laid in the 1990s when the Ministry of Finance engaged in systematic manipulation and misreporting of the public finances data. This was done to ‘cheat’ the IMF under the frequent loan programmes the country found itself in. After being caught out, a hefty fine was imposed on Pakistan by the Fund.
The issue re-emerged around 2004 with wholesale and brazen manipulation of the national accounts data to produce inflated GDP growth rates for certain years. Reporting high growth rates in the economy had a certain ‘halo effect’ for policymakers, legitimising their policy stance while producing a palliative for a politically disenfranchised populace. The next assault came on data relating to public finances around 2011. Tax collection by the Federal Board of Revenue was systematically inflated, only to be caught out by the State Bank via a reconciliation of receipts in the banking system.
The latest episode concerns official data reported by the government in two areas: national accounts (growth) and public finances (FBR tax collection and the fiscal deficit). Falling prey to the same impulses as the Musharraf-Shaukat Aziz administration, the PML-N government appears to have massaged the data to produce “the highest growth rate in last eight years”. The official headline GDP growth rate of 4.7pc in 2015-16, at a time of a decline in cotton output of over four million bales, implies a cotton economy adjusted growth rate of around 6pc. This is incredulous and not supported by any other parameter of the economy – exports, industrial production, electricity usage, private-sector credit utilisation or investment.
In fact, as pointed out by eminent commentators, the data manipulation by the Pakistan Bureau of Statistics was amateur. While growth rates on the sectoral production side were jacked up, the expenditure side was not ‘adjusted’ accordingly. As a result, the national accounts for 2015-16 indicate a marginal propensity to consume of 1.23 – a statistical impossibility.
The other statistical sleight of hand has been performed in public finances. Tax collection has been ‘inflated’ by adding categories that were previously (prior to 2013) being recorded under non-tax revenue. Similarly, the fiscal deficit reduction between 2013 and 2016 is being exaggerated by being reported in strictly non-comparable terms.
The bottom line is that the current institutional safeguards meant to ensure the integrity and quality of official statistics are proving to be woefully inadequate. PBS is nominally independent of the Ministry of Finance, while its professional capacity has been undermined by hiring retired bureaucrats. Restructuring PBS on professional lines with an arms-length relationship with government has to be a core agenda of wider institutional reform.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.
Published in Dawn, June 24th, 2016