Debasing politics and rebasing policies

Thursday, 16 July 2015 00:00 - - {{hitsCtrl.values.hits}}

With an important election around the corner, the country’s economic growth in the past two years has come to the forefront of the national conversation, and to nobody’s surprise, both sides of the political divide are milking it for all its worth.

Former Governor of the Central Bank of Sri Lanka (CBSL) Ajith Nivard Cabraal went on record this week accusing the Government of attempting to downplay the contributions made by the previous regime towards what he claimed was a growth rate of 7.4% in 2014. Deputy Minister of Policy Planning and Economic Affairs Dr. Harsha de Silva maintains that the true, revised figure for that year, following the rebasing of the year 2002 to 2010, was at the far more modest and believable figure of 4.5%.

In the general confusion surrounding this statistical standoff, rebasing as a concept seems to have come under fire. The merits, if any, of this endeavour must therefore be examined in order to have an adequate understanding of the matter.

Rebasing of the national accounts series is, in simple terms, the process of replacing an old base year with a new and more recent base year. The base year provides a reference point to which future values of the GDP are compared. In order to make a more accurate computation of the country’s economic growth, the Government of Sri Lanka changed the base year from 2002 to 2010 for the compilation of national accounts statistics.

Rebasing results in the capture of new and emerging economic activities like small enterprises carried out in households (for example, private tuition, entertainment or beauty culture related services and the like). In this particular case, it also allowed for changes in local, regional and global economic activities over the past decade that had an impact on the country’s economy.

According to the Department of Census and Statistics, rebasing introduces new concepts, scope, methodologies, valuation and classifications which will benefit users in a more detailed analysis.

It is learnt that 2010 was selected as the base year due to the relative stability of the economy that year, following the end of the separatist conflict in 2009.

Rebasing also improves the overall quality of the GDP and its international comparability, allowing for accurate statistics that paint a more realistic picture of current economic realities. It goes without saying that this gives policymakers a better understanding of sectoral growth drivers, ensuring that funds and resources are allocated to the right sectors in order to push the economy forward by creating jobs, developing infrastructure and reducing poverty.

The benefits of rebasing the GDP are, therefore, evident. It allows for pragmatic, evidence-based decision-making in the management of the country’s economy, the significance and importance of which cannot be overstated.

While debate is always welcome and encouraged, it would be in the best interest of the nation if those professing to care about its economic wellbeing did not play politics with the matter.