Flawed economic data

The talking point this week was about growing concern that official data on the economy and other areas could be flawed, and furthermore, doctored. From all reports, there is an admission ( through an official) that economic growth figures have been inflated while on the other side there is a statement by tourism authorities that there was a miscalculation with arrival figures.

Inaccurate data particularly by government agencies is a serious issue and impedes on investments, decision-making – some of which would be very costly not only to the business but, by and large, to the country.

One of the biggest challenges today facing President Mahinda Rajapaksa and the duo who holds the purse strings – Treasury Secretary Dr. P. B. Jayasundera and Central Bank Governor Ajith Nivard Cabraal – is in defending the government against growing allegations that economic data has been doctored to suit political agendas.

To complicate the issue, the tourism authorities announced that there has been a mismatch in the arrivals data and a rectification has seen the country’s tourist arrivals at 1.27 million, over the targeted 1.25 million.

The authorities, grappling with a dilemma of having to account for 250,000 arrivals in the month of December – to meet the year- end target - when December 2012 arrivals was less than half that ( 122,000), claim that an investigation found that the data collection and transfer from the Immigration Department was chaotic. The end result is a readjustment of all monthly figures resulting in a December tally of 153,918 and a rectification off all the monthly arrivals in 2013.

No doubt it was a screw-up, begs many questions and came slap bang just as the Census and Statistics Department is under the microscope for allegedly altering economic growth figures. Adding to the demand for accountability, a top chamber group sought answers from the authorities as to whether the data is accurate and authentic. “If such doubts were to persist, it would lead to a lack of credibility on a range of published data and have serious implications on investor confidence and country ratings,” the Joint Chamber of Chambers of Commerce said urging the authorities to investigate the relevant allegations in a “credible and transparent manner” and to establish the integrity of data published by all agencies as a matter of urgency.

If the Government credibility has worsened over the year with false hopes and bogus expectations, this has given it another spin.

JVP MP Anura Kumara Dissanayake fired the first shots in this evolving drama relating in parliament how a senior officer at the Census and Statistics Department was asked to alter the economic growth projections. Refusing to change the figures, the officer has been transferred and reportedly filed a fundamental rights petition, a new beginning in the continuing saga of ‘ believable’ economic data. The Census Department Director- General has strenuously denied the allegations, finding strong backing from Cabraal, often the butt end of economists and opposition politicians over the data issue, who also defended the department and rubbished the ‘doctored’ data claims.

However this time, the Government and the Central Bank is confronted with a tougher mandate of rejecting the claims, just as the tourism authorities, probably unintentionally, threw more fuel into the fire by acknowledging that the arrivals data has had ‘issues’.

Inaccurate data has a major impact on business decisions. Decisions to invest in hotels, for example, are based on supply and demand. That means new investments are made on a projection of tourist arrivals, current capacity and required capacity over the period of time. Arrivals’ data is critical to make such an investment decision and if the data, by the authorities own admission, had issues ( for example 2012 may have had more arrivals or less, who knows), such investments may take longer to secure a return.

Even though current data collection is based on UN standards, for many years the debate over tourism data centered on its classification and the need for proper definition of a ‘ real’ tourist as against Sri Lankans carrying foreign passports and foreigners working in Sri Lanka who are also counted as ‘ tourists’, when strictly they were not. Now a new dimension has entered this debate.

Clearly the credibility of the Government, as stated earlier, is as – one would say - ‘ down the pallang”, reinforced by a Business Times (BT) email poll which – this week too – drew a large response. The verdict – No one believes the economic data issued by the Government (see BT poll on Page 1).

While authentic economic data is essential for a multitude of reasons, it is well known that authorities in many countries manipulate data to suit either political needs or investment promotion agendas.

The controversy over whether or not the economic data is accurate has been on the discussion board for many years but the Census official’s admission has thrown fresh light on this debate.

Public discussion on issues on this nature is muted or struck down by powerful government personalities. At a discussion this week on the Central Bank road map, former Central Banker Anila Dias Bandaranaike said no (free) public debate is allowed on the economy. In her words, “… there is no space available for public debate and discussion and to voice constructive responses and criticisms”.

Responsible officials are also afraid to speak the truth and the aggrieved Census officer, who is maintaining stoic silence as the economic statistics row deepens, is a rare breed indeed. No sane official is ready to jeoparise promotion and pension benefits to speak out.

Attention has also been drawn to an IMF assessment of the economy in May 2013 where growth forecast were 2013 – 6.3 % and 2014 – 6.8 % whereas the CB’s growth forecasts were 7.3% and 7.8%, respectively. As one economist noted, both forecasts are exactly 1% more than the IMF forecasts. “1% is a large margin for growth rates. There is something fishy somewhere,” the economist said.

There have also been allegations for years that foreign investment figures are inflated and often massive expansions by big local entities are included as foreign direct investments when such expansions are undertaken with locally borrowed funds!!!

The Government has set targets of reaching middle income status from a low- middle category, per capita at $ 4000 and 2.5 million tourists all by 2016, and now there are suggestions that data adjustments could be connected to meeting these targets.

2016 is the year President Mahinda Rajapaksa’s 6-year term officially ends. There is also speculation of a poll ahead of schedule, as early as 2014.

The Government has a lot of explaining to do in the row over economic data and come up with an argument that is believable. The joint chamber movement is asking for a probe in a ‘credible and transparent process.

In the current environment, that’s not only a hard task but a near impossible one. As one wag said, it would be ‘incredible’ if a credible and independent investigation is undertaken and concluded to the satisfaction of all.