Sri Lanka’s new GDP data technically correct, but 2012 growth sinister: Cabraal
ECONOMYNEXT – Sri Lanka’s newly compiled gross domestic product data may be technically correct and it has shown that GDP was understated during the last regime, and but the start date for the new data model is suspicious, former Central Bank Governor Nivard Cabraal said.
Sri Lanka’s nominal GDP for 2014 (at prices current at the time) was estimated under a 2002 model at 9784 billion rupees, was revised up to 10,291 billion rupees under the new method.
"So GDP is not 74.9 billion dollars, but it is 78.8 billion US dollars (in 2014)," Cabraal told reporters. "Our per capita GDP was earlier estimated at 3,625 dollars. That has increased to 3,795 dollars.
"That means the situation was much better than we thought when Mahinda Rajapaksa handed over the country."
He said the 2012 GDP growth which was revised up to 9.2 percent from 6.2 percent, made the growth in the subsequent two years much lower.
"That looks like a ‘jillmart’," Cabraal said, referring to a term used by the elected ruling class to refer data or other manipulations by themselves or state workers to deceive their opponents or ordinary citizens in the street
"By 2014 there definitely a set of economic data that was not being captured, that is why the totality of our GDP was understated.
He said in 2012, steps were taken to contract the economy, with a credit squeeze, and the sharp rise in estimated GDP seemed ‘sinister."
Sri Lanka’s central bank fired a massive credit bubble in 2011, accommodating oil subsidies with printed money and keeping rates down, which then hit the balance of payments requiring sharp corrections in the form of higher interest rates and fuel price hikes in 2012.
Analysts have warned that a similar bubble is being fired now.
The credit momentum did not halt till mid-2012, when all central bank interventions in forex markets were stopped.
"In that year growth could not have gone up from 6.2 to 9.2 percent. It is not reasonable," Cabraal said.
"That is where I see some political action. But the final action I see as being reasonable. I don’t dispute that."
It has been suggested that the last regime dragged its feet on releasing the new dataset because growth rates were seen coming down.
Many economists however have pointed out that GDP calculations are flawed and that it is a neo-Mercantilist statistical method that has no foundation in real life.
In a sharp downturn for example when a credit collapse reduces all economic activity, GDP can go up simply because imports contract, despite an economy virtually ‘collapsing’ in the experience of ordinary people.
GDP also takes into account salaries of state workers as GDP, including spending on war. Before the Second World War, when GDP was not formalized as today such activities were not considered as productive.
But today ‘military Keynesianism’ has come to stay, despite the real damage the state inflicts on an economy not just through war, but through all state unproductive spending, money printing and currency depreciation.
Cabraal said Sri Lanka’s debt to GDP was now revised down to 71.9 percent of GDP, which was better than the earlier figure.
Reporters told Cabraal that there were questions about the total central government debt as tens of billions of bonds, especially those issued to bailout loss-making state enterprises, have been kept out of the total debt.
Cabraal said he was not aware and would check and reply at a later date.