The Numbers Game
Analysts have questioned the accuracy of Sri Lanka’s glowing growth figures, deeming them slightly inflated.
Analysts have questioned the accuracy of Sri Lanka’s glowing growth figures.
The World Bank in its Global Economic Prospects report of June 2011 commended Sri Lanka's post-war economic recovery. The report also predicted that Sri Lanka and India would be at the forefront of growth in South Asia.
Only a few years after a longdrawn war came to its conclusion, the Sri Lankan economy registered an annual growth of 6.4 percent from 2003 to 2012.
If official statistics are to be believed, Sri Lanka has been living up to its glowing reputation. The country’s Census and Statistics Department announced in its report a phenomenal Gross Domestic Product (GDP) growth of 7.3 percent in 2013, and placed economic growth at 8.2 percent in the final quarter of the year.
According to the details of this report, the industrial sector registered a 9.9 percent year-on-year increase, followed by the services sector with a 6.4 percent rise.
That is not all, though. The agriculture sector grew at a rate of 4.7 percent. Meanwhile, in the services sector, tourism flourished and the hospitality industry grew by 22.3 percent. Furthermore, the port and telecommunications sector marked a growth of 11.4 percent.
Why is there so much interest in GDP and why should we care? Simply put, GDP is the market value of all officially recognized goods and services produced in a country in a year. The GDP per capita indicates a country's standard of living. Significantly, the GDP per capita is not a measure of personal income. Instead, it exactly equals the Gross Domestic Income ( GDI) per capita. However, GDP is related to national accounts.
Dampening the celebratory mood in Sri Lanka are accusations of ‘number fudges’ leveled against the department of Census and Statistics. Analysts and leading Sri Lankan publications have questioned the accuracy of these glowing figures and deemed them at least slightly inflated.
Speaking at a media conference
in Colombo, Deputy Governor, Central Bank, Dr. Nandalal Weerasinghe rubbished charges of data manipulation. He argued that inflating figures is no small task as the numbers are linked with the data of various other sectors. Tampering with figures will inevitably reflect itself the next year, he reasoned.
The Sri Lankan press reported that the Census and Statistics Department Director General, DCA Gunawardena also denied allegations of misreporting the GDP. He defended the process through which data is collected, citing reliance on scientifically designed surveys, census, special studies and administrative records.
Even so, an official in-charge of GDP computation of the Census and Statistics Department appears to have been selected to take the fall. Gunawardena clarified that the said official failed to comply with the department’s regulations while performing his duties. The officer has since been transferred and penalized for his mistake. Gunawardena nonetheless defended the department’s practices and the reliability of its methods. "Our Department and officers play by the rules and do not have any hidden agenda. Hence, the data released is not inflated or manipulated as claimed by opposition politicians including JVP Parliamentarian Anura Kumara Dissanayake," he said.
"All the calculation processes are done and figures are computed in accordance with international criteria and UN manuals. Computation of statistics is carried out in accordance with the relevant recommendations of the United Nations, World Bank, IMF and several other international agencies,” Gunawardena said.
But the IMF also appears to have expressed its concerns about the calculation process. In a report released last year, the IMF made clear that there is room for improvement in Sri Lanka’s GDP calculations and that the country does not yet comply with the highest data dissemination standards.
"The national accounts suffer from insufficient data sources and undeveloped statistical techniques," an IMF country report said. "The country does not have periodic comprehensive benchmarks or a system of regular annual surveys of establishments. A statistical business register, which would serve as the main basis for conducting sample surveys, is not available. As a result, the few surveys that are conducted do not have good sample frames."
The report further said that estimates of gross value added are prepared by directly relying on outdated fixed ratios established from the base year 1996, often with outdated studies or adhoc assumptions. Moreover, the report declared the methodology for deriving GDP at constant prices as unsatisfactory.
The IMF said fiscal statistics could also be improved and there would be technical missions in 2013 and 2014 to help in this regard.
In Sri Lanka’s defense, it has to be said that analysts accept that most countries are guilty of tinkering with data. In fact, developed countries often use incredibly sophisticated mathematical methods to understate inflation.
Economic commentator, Kevin Phillips has addressed data manipulation in the United States. He went so far as to say that the country is living on "borrowed prosperity."
In a recent report on the South Asian region, the World Bank projects that Sri Lanka would continue to grow at 7.3 percent this year, thanks to infrastructure investments and postconflict rebuilding.
Sri Lanka has taken definite strides forward and its progress is not just all hype. There is good reason to believe that the country has outperformed other South Asian countries when it comes to its success in pursuing the Millennium Development Goals. According to the World Bank, Sri Lanka has met the MDG target of halving extreme poverty. The country is said to be on track to meeting most of the other MDGs as well.
However, overall indicators for South Asia remain worrisome. A World Bank report presents grim statistics that underline an infrastructure gap in the region. What this means in effect is that a large mass of humanity in this part of the world does not have access to basic infrastructure including roads, toilets, electricity, clean water and telecom.
The report further says that 41 percent of South Asia's population defecates in the open while 75 percent does not have access to piped water. The report concludes that South Asia needs to invest up to $2.5 trillion to bridge its infrastructure gap over the next decade.
The controversy surrounding Sri Lanka’s GDP isn’t just a matter of numbers; it highlights a lack of transparency and credibility when it comes to official data – a type of distrust that exists all over the world and says more about governance than it does about economic growth.