Criticality of credibility

Credibility of Pakistan’s economic statistics has mostly been in doubt and such apprehensions have always been expressed by analysts working within the country and abroad. Such perceptions have now been openly confirmed by no less a person than Former Advisor to Planning Commission, Dr Talat Anwar, who said in a conference organised by the Pakistan Bureau of Statistics (PBS) that there were inconsistencies in the Consumer Price Index (CPI) which could have serious implications for measuring inflation and poverty in the country. His main contention was that CPI weights were not consistent with different food shares in Household Integrated Economic Survey (HIES) and budget surveys, with one having a food share of 40.08 percent and another 34.8 percent. Reduction of food share from 40 to 34 percent in the CPI basket 2010-11 may have helped show a lower inflation rate and as a consequence poverty may be much higher compared to government estimates. Pakistan was facing serious energy crisis with high unemployment and official poverty estimate at 17 percent in 2008 and 12 percent in 2011 was not consistent with declining economic growth. It was suggested that SPI, instead of CPI, may be used for poverty estimation as the SPI was more reflective of food consumption pattern of the population. Most of the participants of the Conference also raised questions on the price collection methodology of the PBS, especially on samples and sizes of rural and urban areas. A representative of the World Bank had concern that rural food share was not properly reflected in the CPI, which might have an impact on poverty measurement though its extent couldn’t be precisely determined. John Gibson of Waikato University from New Zealand stated that prices were poorly measured in most of the developing countries and there was a need for comprehensive price survey for proper management.

The debate on the credibility of the CPI in Pakistan, which is considered to be the most important indicator of price behaviour in the country, is neither new nor without ample justification. However, its reliability has deteriorated markedly after the adoption of latest methodology and vast improvement in the CPI, showing a substantial deceleration in the inflation rate in the recent months. While the government continues to blow its own trumpet with full force about the containment of price pressure, ordinary people, while shopping in the retail markets, have a completely different experience. It is more or less, acknowledged that the rate of inflation may have decelerated in the recent past somewhat but the rate of deceleration as claimed and published by the PBS is largely overstated. One reason for such a dichotomy could be the share of food basket in the Index but the matter has serious repercussions on overall policy. The problem needs to be explored much more seriously and thoroughly. There are doubts obviously about the quality of HIES, which is determining further for the compilation of weights in addition to the perception that rural areas are under-represented in the CPI. Measurement of the real and believable inflation rate is not only important for enhancing its credibility among all and sundry but is also crucial for designing the overall macroeconomic policy framework of the country. Speakers in the conference largely emphasised the role of inflation in measuring poverty but it is only limited to this area. As most of the analysts and other stakeholders, for instance, are aware, the State Bank depends primarily on the behaviour of CPI for determining its policy rate that influences the overall interest rate structure besides affecting annual wage increases and saving rate in the country. Also, multilateral financial institutions also depend on the PBS for such vital statistics and any doubt about its authenticity could be interpreted as a sign of slyness from the Pakistan authorities. Keeping all these factors in view, we would earnestly suggest to the government to form a high-level committee to scrutinise the price data, its weights and coverage comprehensively in order to construct a new price index, which is truly reflective of the overall market conditions in the country, and in which the public in the country and multilateral financial institutions could have a complete faith.

Second, the Board of PBS should be filled by those who use the PBS data and have experience in collection, as well as its usage ie the statisticians. Let us refrain from manipulating data to please the government of the day. Wrong statistics based on mere assumptions lead to incorrect decisions.