Pakistan's Official GDP Figures Exclude Fast Growing Sectors
By Riaz Haq
CA
"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 large scale manufacturing sector as its focus. 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 the 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.
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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.
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 its 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 the rising new product demands of the country's growing middle class consumers. It's 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.
