OPINION
Babar Nizami
Are our economic managers flying blind?
The finance ministry wasn’t amused. The economy is not overheating, they say. It’s just some cost-push inflation. Please let’s just wait it out and in the meanwhile, let us not create conditions (like high interest rates) that will hurt businesses, as well as the government’s own fiscal space. Whichever side of the debate one is, however, it underlines yet again, an issue that we keep coming back to. The lack of statistics with which to prove one’s argument. Take, for instance, the issue of whether or not the The Dismal Science is also an inexact economy is overheating. As recently as September, the science, yes. But our horrible statistics advisor on finance announced that the economy might be overheating. However, the SBP back then did not see any departments have made it look like serious dangers, and was thus not ready to increase the inastrology terest rates drastically, which is the usual medicine given to an overheating economy. However, this difference of opinion wasn’t a problem back then since even then the finance disagreement seems to be brewing between the fiadvisor didn’t want an increase in interest rates and wanted nance ministry and the central bank. Not on whether to cool down the economy through fiscal tools. or not there is inflation – one would have to be a The advisor and the governor still disagree, but now certain kind of overseas supporter of the ruling party they have clearly switched sides. Who was right, when? to dispute that – but on what is causing it. By definition, an economy can be pronounced as The lot at Q Block thinks we’re seeing costoverheated when, in addition to inflation, it is also at full push inflation caused by international supply shocks. There are just employment, – which economists describe as 96 out of a 100 way too many inputs that we are importing, like fuel, most notably, people having jobs. Now, whereas the managers of the Amerthat are just too expensive, which in turn, make everything else too ican economy make their calls using employment figures expensive. The central bank, on the other hand, feels there’s too much provided to them on a monthly basis, their Pakistani counmoney sloshing about and some of it needs to be sucked out of circuterparts have absolutely no usable employment data to rely lation to curb it chasing the same quantum of goods and services. on (the last Labour Force Survey was conducted in 2018-19.) Unfortunately for the finance ministry, in these two competing The quality of data is heavily contested in many countries views, the central bank’s view involves something under its direct but we are not even at that stage yet. Our data is ancient to control: the interest rate. And, as we saw on the 14th of this month, begin with, hence, completely useless. they hiked it up by another 100 basis points. So what does the SBP do then? The good news is that, before each meeting, the members of the Monetary Policy Committee (MPC) of the central bank are all presented with an exhaustive compendium of statistics by the SBP’s own statistics department. And the MPC does make decisions based on that data, including an effort to estimate the output The author is a business gap, which is considered to be an acceptable alternative to the unemployment number. But journalist and a media the problem here again is that the number crunchers at the central bank mainly rely on professional, presently working the GDP number calculated a year ago, and also some other guesstimates that the Pakistan as the Publsihing Editor for Bureau of Statistics (PBS) working under the Ministry of Planning gives them. Profit. He can be reached It is also a fact that the MPC is a sort of a democratic body, containing a rather diverse via email at babar.nizami@ set of viewpoints. And we don’t use that word lightly. Not only does it have industry reprepakistantoday.com.pk. He sentation (which one would assume would always vote for low interest rates), it also has an tweets @Bnizami
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