GDP, or the gross domestic product is the gross monetary market value of all final goods and services in a fiscal period, measured by the market’s governing authority. What this means is that financial authorities sit together once a year or once a quarter, look at the tax receipts of manufacturers, growers and services providers, and calculate how much they have produced. They don’t account for services rendered by businesses to businesses during the production of a final good, neither do they account for services rendered by governing authorities. At least that is the assumption one gets.
In fact, the calculation of GDP is significantly more complex, and no two countries have the same criteria for calculating it. To begin, let’s delve into how GDP is calculated, and which approach has been taken by the government of Pakistan over the last considerable years. The most common method of calculating GDP is through the following equation:
GDP = C + I + G + (X – M) or GDP = private consumption + gross investment + government investment + government spending + (exports – imports)
This is called the expenditure approach of calculating GDP.
Pakistan’s GDP is calculated using the what is known as the production approach. The formula for it is:
GDP = (GVA+T-S) or GDP = commodity production + service sector receipts + taxes – subsidies
This approach emphasizes the production capability of Pakistan, over its expenditure and investment. To look at how this method stacks up the $300 billion published by the Pakistan Bureau of Statistics (PBS), we have taken their statistics and laid it out below.
What about the per capita GDP and GNI?
Despite impressive growth in GDP over the years, the GDP per capita of Pakistan has been a tragedy this year. Before the census, it was being calculated by dividing the total population of the country by the GNI or the Gross National Income. The PBS calculates GNI by adding net income from abroad and GDP together. . That number was measured at:
PKR 31,862,167,000,000 (GDP) + PKR 1,772,244,000,000 (Income from abroad) / 197,260,000 (Population) = PKR 170,500 (GDP per capita)
Unfortunately, the census showed the population of Pakistan to be above it’s estimate, soaring as high as 207.7 million. Therefore, the revised calculation came to be as follows:
PKR 31,862,167,000,000 (GDP) + PKR 1,772,244,000,000 (Income from abroad) / 207,700,000 (Population) = PKR 161,900 (GDP per capita)
While the population census was a blow to the GDP, Pakistan’s economy is improving year over year. It has seen significant growth in the sectors of livestock, large manufacturing, transport and communications as well as in retail trade. But the opportunities available to the government far exceed the current performance. Pakistan needs to prioritize education, technical training and create ease in borrowing capital for a burgeoning population, so that the production metrics amongst various underachieving sectors which make up the GDP can be improved.