Economic survey: no economic target achieved in 2011-12

[Sa1eem]

Re: Economic survey: no economic target achieved in 2011-12

@Ali_Syed

As far as Pakistan’s nominal GDP is concerned (I’ll be taking Saleem’s figures above).

FY 2008-09: Rs 12110 bn (USD 201 billion) 1 USD= 60 PKR
FY 2011-12: Rs 19436 bn (USD 215 billion) 1 USD= 90 PKR

About 7 % increase in GDP during the past 4 years, considering the following:

1. Worst load shedding (16-22 hours in rural areas and industrial hubs) and gas shortages
2. Terrorism (2008 to 2010 especially)
3. Fertilizer crisis
4. Worst floods during the last 2 years

And if still the GDP is growing, what does that tell us?

1. Pakistani economy is resilient?
2. Good governance?

The figure I have given is not mine. It is Pakistan official figure. Now, if you understand GDP measurement, everything would get cleared.

Nominal value of GDP growth tells nothing. What tells something is real economical growth (real growth in GDP). Pakistan economy is growing no doubt and it is growing better than 1990s, but if we compare the growth with growth during 2000s (until 2008), then we can say that Pakistan economy is going down badly.

Here is how to understand things:

GDP = Total goods and services produced in the country (its value in current rupee).

So, as rupee value of goods and services increases due to inflation, nominal value of GDP also increases without any extra production of goods and services rather production of goods and services staying same as last year (or could be even less than last year).

It is just like:

‘A’ was earning Rs 10000 last year and with that money he could have bought 1000 roti.

This year ‘A’ started earning Rs 12000 and with that money he could only buy 800 roti because price of roti increased to 150.

Obviously, salary increased but person gone poor (or his economical situation gone worse).

Anyhow, if last year country produced 1000 roties and sold it for Rs 10 each than GDP value due to roti would be Rs 10,000. On the other hand, if this year country produced 1000 roties as last year and sold those roties at Rs 15 each than GDP value due to roti would be Rs 15000, thus giving 50 percent increase in nominal GDP, even though there was no increase in real GDP.

As for GDP in dollars, that is also immaterial since exchange rate can go down and up in short term without regard to real growth or deterioration in GDP. For instance, if Pakistani rupee devalue or revalue on any day, that does not mean price in country increases or decrease, or salary increases or decreases, that day due to new value of dollar. Thus, only true measurement is real GDP growth rate. Values of other things effect real GDP growth rate, but they do not determine anything on their own.