Karachi, January 21, 2022 (PPI-OT): GDP rebasing takes place, FY21 GDP touches 5.6%

The National Accounts Committee (NAC) yesterday announced the rebasing of prices used for the calculation of Gross Domestic Product (GDP) to 2015-16 from 2005-06, which led to Pakistan’s FY21 GDP growth to be revised to 5.6%.

While the rebasing favours most of the optics of GDP denominated performance metrics such as Debt position, CAD and Fiscal Deficit, indicators such as Tax collection and Market Capitalization as % to GDP are negatively affected.

While the rebasing is important to reflect a more update view of the economy, we believe a more accurate assessment of quantum and size of Pakistan’s GDP requires efforts to capture and quantify the grey economy.

GDP prices finally rebase to 2015-16

Following the recent rebasing of Large-Scale Manufacturing (LSM) Index to 2015-16, the National Accounts Committee (NAC) yesterday announced the rebasing of prices used for the calculation of Gross Domestic Product (GDP) to 2015-16. The event coincided with revised GDP estimates approved for FY21 by NAC, which jumped from 3.9% (based on 9MFY21 numbers) to 5.4%, marking the second highest growth in fourteen years. With rebasing affect, the FY21 GDP further inches up by 20bp to 5.6%. This led to FY21 nominal GDP revising by 16%, to Rs55.5trn, and computing to US$347bn.

GDP rebasing in Pakistan was last done in 2005-06 and it had been long overdue since 2015-16 to which we had already rebased inflation. For comparison, in most Asian countries, Bangladesh, China, India, etc, GDP rebasing practice follows roughly every 10 years. Some countries, like Korea and Singapore, revise their GDP base every 5 years; developed countries undertake it more frequently. We await the document for colour on detailed weight contributions.

GDP rebasing to reflect better metrics

As we had duly mentioned in our report, ‘Pakistan Strategy 2022: A rebounding asset at sub 5x PE’, accuracy of measuring GDP size and growth, besides the contribution from its constituents, is extremely critical for credibility, investor confidence and consumer confidence. This also ensures timely and sound policy navigation for authorities. The rebasing alters the optics of different GDP denominated performance metrics.

In case of Pakistan, it has mostly enhanced the size of nominal GDP and consequent to this, metrics like debt-to-GDP, GDP per capita, CAD-to-GDP, fiscal deficit-to-GDP etc. now seem better in helping Pakistan help restore negotiating position with global lenders. However, an upward adjustment in nominal GDP is negative for metrics like tax-to-GDP. Though this also takes Pak Equity Markets a step back with market cap as % of GDP dropping by 230bp to 13.9%, it does not make a substantial change in the country’s ranking when compared to regional peers that range from 20%-70% of GDP.

Does it still reflect the true picture of Pakistan?

While the GDP calculation has been rebased, we believe it still doesn’t capture the whole GDP that Pakistan has to offer. Moreover, from its last rebasing exercise, when GDP was rebased to 2005-06,
Pakistan has undergone many changes in technological advancements in order to improve production, optimize costs, etc. More specifically, with the flurry of investment in tech-based start-up targeting Generation Z. The detailed break up would be interesting to note for the reporting of various emerging sectors in the economy.