ISSN: 1391 - 0531
Sunday, April 22, 2007
Vol. 41 - No 47
Financial Times  

Debate over GDP, statistics, data

A retired civil servant once asked “We talk of GDP but what does it mean to the man on the street or the layperson?” Dr U. Pethiyagoda, in a recent article he wrote for The Sunday Times FT, said “Economics is steadily becoming the art of making commonsense difficult to understand.”

This perhaps is one of the reasons why a huge debate has been triggered after the Central Bank trotted out its latest set of statistics for 2006 where gross domestic product (GDP) has been pegged at 7.4 percent in a year where people were heavily burdened by rising costs and security concerns.

For, the common view and widely-held one is that growth must mean benefits to the people in terms of their basic needs: better jobs, improved quality of life, less poverty, higher incomes and higher cost of living NOT lower incomes and higher cost of living, etc, etc.
But that isn’t the case. Confusing the public however through the art of figures and economic balderdash is not usual. According to Dr Pethiyagoda even political leaders are flummoxed by figures like Dr Mahathir Mohamed of Malaysia who once reportedly pleaded “will someone please give me a one-handed economist? Whenever I present a problem my experts tell me “…. On the one hand, you may …….but on the other ……..!” What use is this to me?”

Dr Pethiyagoda also has a valiant point:
How does one explain what impact say the increase of public servants’ salaries, increased defence expenditure, tamasha expenses, imports of luxury items, thefts of public property, repair of terrorist damages to public resources and other unproductive publicly financed extravagances has on “growth”, GDP and therefore per capita incomes?”
“Why does also the bureaucracy glibly talk of “foreign assistance” or “foreign aid” – hiding the fact that loans we have to pay while grants are free,” he asks.

Back to the GDP debate, local economists in our special series on GDP this week point out that though the economy has grown, it has done so for negative reasons and what is perceived as anti-poor growth against pro-poor growth which is positive for everyone.
Economist Harsha de Silva says the growth is 'demand induced growth' or 'deficit spending and to some extent because there was a huge chunk of new money printed. “People cannot feel the 7.4% growth. What people feel is the high cost of living.
The people have been taken for a ride," he says.

Migrant worker remittances also contribute to rising GDP. But economist Dr Sirimal Abeyratne from the University of Colombo believes that increasing worker remittances from overseas means ‘we are getting more into poverty”. His argument is based on the premise that more money coming from hard-working Sri Lankans to sustain their families at home means more people are going overseas because there are no jobs here or the cost of living is high and doesn’t commensurate with average income levels. That statistic, often used by governments as a positive development, is in reality a negative one.
Also while governments gloat over remitances, the poor migrant worker hardly gets any support.

Socio-economist Ajith Colonne says rampant corruption in government also contributes to ‘positive growth.” "If corruption is high, that growth is also embedded into the GDP," he said; another negative and unproductive element of GDP. But the Central Bank’s Deputy Governor, W.A. Wijewardena defends the Bank saying the criteria used in GDP measurements are in line with international standards. “In terms of the standards, we cannot publish one set of data in one year and publish another set of data another year and mislead the readers,” he argues against the contention that the Bank has only used ‘favourable’ statistics in compiling the GDP. He says critics are not aware of the high standards Sri Lanka has to maintain in releasing its data. On another controversial issue – printing of money which triggers inflation, Wijewardena says printing currency is only one component of the total money supply whereas there is also money created through bank deposits.

"If anyone wants to criticize the CB, they should look at the growth in total and money supply and not the amount of currency printed by the CB." The GDP debate is set to continue in coming weeks amongst academics, the business community and the political leadership but few lessons would be learnt in this process. The reality is that the public doesn’t have faith in state institutions and that applies to the Central Bank too however much it crows from its rooftops of being an ‘independent institution”, Here’s a piece of advice to the Bank: in future when trotting out these figures please provide a more-laymen friendly update on how ‘positive GDP” impacts on the lives of the people in terms of COL, jobs, education and health. In the meantime, The Sunday Times FT welcomes more comments and views on the GDP debate.

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Copyright 2007 Wijeya Newspapers Ltd.Colombo. Sri Lanka.