Pakistan has authorised the World Bank to undertake a study to come out of what an economist called the age of ‘statistical darkness’, after the country’s finance minister also started believing that the nation’s gross income is understated by as much as 25%.
“I have asked the World Bank to trigger a study and come out with the actual size of Pakistan’s Gross Domestic Product (GDP), which I believe is currently understated by 20% to 25%”, said Finance Minister Ishaq Dar on Saturday while addressing a gathering of chartered accountants from South Asian nations.
His statements came in the backdrop of a widely used figure for the size of the Pakistani economy, currently stated to be hovering around the $280-billion mark.
Dar said after noticing this undercounting of economic output, he decided to stick to 7% GDP growth rate target for 2019.
He said that the input output coefficient of various industries has not been worked out for the last two decades. Dar said that the World Bank would require at least one year to complete the study.
He assigned the task to the World Bank last week during his visit to Washington. He is the second person and the first in the government who has now started believing that the country’s national output could be far more than what it is at the moment.
The idea was first floated by Shahid Javed Burki, former vice-president of the World Bank, during a meeting with Dar that took place two months ago.
Pakistani policymakers are taking decisions in statistical darkness and the World Bank can help to end this, wrote Shahid Javed Burki in an article published in The Express Tribune after his meeting with Dar.
He had written that China was also making a similar mistake and was underestimating its gross income by as much as 25%. He believed that Pakistan was under-counting its GDP by the same order of magnitude.
A 25% upward adjustment in the estimate of GDP will bring 2017 Pakistani income from $280 billion to $350 billion, improving its world ranking from 43rd to 31st. It is then likely to cross South Africa, Singapore, Malaysia and Egypt, according to Burki.
According to Burki, some of the methods that Pakistan was using and the surveys that collected required data were seriously outdated. Pakistan was also not correctly estimating the size of its modern services – in particular information, communications, entertainment, travel and advanced commerce. All these sectors contribute much more to the economy than suggested by official numbers, he wrote.
Meanwhile, Dar on Saturday finally announced that this fiscal year’s tax target of Rs3.621 trillion has been revised downwards. “We are aiming for over Rs3.5 trillion tax collections for fiscal year 2016-17,” said Dar.
The Federal Board of Revenue (FBR) is now aiming to collect Rs3.521 trillion – a cut of Rs100 billion.
The government had to lower the target after it faced a shortfall of Rs168 billion during the first nine months (July-March) of the current year. The shortfall has further widened in April to Rs198 billion after the FBR also missed its April target by a margin of Rs30 billion. Against the monthly target of Rs290 billion, the FBR could pool Rs260 billion, according to provisional results. The monthly collection is expected to slightly go up to Rs263 billion.
The cumulative tax collection during the first ten months (July-April) increased to Rs2.55 trillion. The FBR needs to generate Rs996 billion in the remaining two months of the fiscal year, which seems like an uphill task.
Special Assistant to Prime Minister on Revenue Haroon Akhtar said that the FBR sustained Rs121 billion shortfall due to change in polices by the government after the announcement of the last budget.
Dar also said that the government would set up a Pakistan Infrastructure Bank with the help of the World Bank and others. The government and the World Bank each will have 20% shareholding while other parties will have 60% shares, said Dar.
The $1.5 billion Saudi Arabia grant will be injected in the proposed bank, said Finance Ministry officials. The Kingdom had given the grant three years ago, which remains unutilised till today.