‘Think tank slams Pakistan’s economic growth claims’: a rejoinder

This is apropos a news item titled “Think tank slams Pakistan’s economic growth claims” carried by media on 04-01-2026.

The following is the response/rejoinder to it from Ministry of Planning, Development, & Special Initiatives and Pakistan Bureau of Statistics, Islamabad:

The news item argues that the reported 3.71 percent GDP growth in Q1 FY2025-26 is inconsistent with underlying economic conditions and selected high-frequency indicators but rather reflects statistical and accounting effects.

The news item argues that the headline growth is driven largely by accounting effects, deflator adjustments, subsidies, and import-dependent assembly activity, rather than a broad-based expansion in domestic productive capacity.

Think tank slams Pakistan’s economic growth claims

The news item pointed out the inconsistencies between sectoral growth estimates and underlying indicators such as declining agricultural output alongside rising food imports, strong industrial growth led by subsidized utilities rather than physical production, and construction activity increasingly supported by imported machinery, suggesting that growth is visible in national accounts but less evident in real business activity and external competitiveness.

Views of the Pakistan Bureau of Statistics

The quarterly GDP growth estimate of 3.71 percent for Q1 FY2025-26, with Agriculture at 2.89 percent, Industry at 9.38 percent, and Services at 2.35 percent, has been published by the Pakistan Bureau of Statistics (PBS) in accordance with the internationally accepted System of National Accounts (SNA 2008) methodology and PBS is publishing QNA on same methodology since Nov 2023.

The estimate is derived from a comprehensive set of sector-specific production indicators, rather than perceptions or isolated proxies. The resulting growth profile reflects a broad-based improvement across agriculture, industry, and services, underscoring the underlying strength of economic activity during the quarter.

Sector-wise explanation of Q1 FY 2025-26 growth

The agriculture sector registered a growth of 2.89 percent in Q1 FY2025-26. While the crops subsector contracted by 3.65 percent, primarily reflecting declines in important and other crops in the aftermath of floods, the livestock subsector, accounting for 66 percent of agricultural value added, recorded robust growth of 6.29 percent. This performance reflects improved sectoral efficiency and a moderation in intermediate input costs, which translated into higher value added during the quarter. Consequently, the contraction in crop output was more than offset by higher livestock production, resulting in a positive contribution to overall agricultural gross value added (GVA).

The industrial sector growth of 9.38 percent was broad-based and not solely driven by subsidies. Large-Scale Manufacturing (LSM), measured on a QIM basis, expanded by 4.1 percent, with strong contributions from Food (+6.3 percent), Automobiles (+84.6 percent), Transport Equipment (+40.7 percent), Non-metallic Minerals (+13.9 percent), and Rubber (+14.1 percent), partly offset by contractions in Machinery & Equipment (–14.1 percent) and Mining (–4.13 percent). These developments are fully reflected in the Quarterly National Accounts (QNA).

Growth in Electricity, Gas and Water Supply (+25.46 percent) reflects measured increases in physical output, including higher utility generation and distribution, with values appropriately adjusted for subsidies and CPI deflators in line with SNA value-added methodology. The construction sector recorded robust growth of 21 percent, supported by a 15.32 percent increase in cement production and a 58 percent rise in development expenditures at the federal and provincial levels, largely directed toward construction-related activities. In addition, other construction-related indicators also showed improvement. Accordingly, construction activity was not solely import-driven but reflected broad-based domestic economic activity.

Services sector expanded by 2.35 percent, driven by growth in Wholesale and Retail Trade (+3.08 percent), Transport and Storage (+3.16 percent), Finance and Insurance (+10.36 percent), and Public Administration and Social Security (+8.08 percent).

In contrast, a contraction was recorded in Information and Communication (–28.7 percent), reflecting the indicator-based quarterly measurement approach, which primarily relies on output indicators of mobile and telecom companies. Complementary indicators, such as exports of IT and IT-enabled services and tax collections from the telecom and IT sectors, are not incorporated in the quarterly estimates.

Despite a 21 percent increase in exports of IT-related services and approximately

3.0 percent growth in tax collections from the telecom sector, the Information and Communication sector recorded a decline of 28.7 percent in Q1 FY2025-26 under the Quarterly National Accounts methodology, which relies on specific short-term output indicators. These positive developments are expected to be fully captured and contribute positively to the growth of the Information and Communication sector in the Annual National Accounts.

Consistency with high-frequency indicators

Contrary to the article’s assertion, high-frequency indicators corroborate the official growth estimate. Pakistan Manufacturing PMI rose to 52.8 in December 2025, the highest level since February 2025, indicating expansion in output, new orders, employment, and business confidence. This aligns with the observed recovery in manufacturing and construction activities captured in Q1 GDP estimates.

Addressing article’s claims

Critics argued: “GVA = output – intermediate consumption; when intermediate consumption declines for reasons unrelated to productivity, GVA mechanically increases without real output growth.” However, lower intermediate consumption can influence GVA; it is fully accounted for in sectoral weights and sub-components. Example: In agriculture, livestock growth (+6.29%) partly reflects lower input costs (green fodder -14.4%), but this is a real economic effect rather than arbitrary accounting.
Likewise, growth in Electricity, Gas and Water Supply (+25.46%) is based on actual measured output, including WAPDA and utility production, with values appropriately adjusted for subsidies and CPI deflators in line with SNA methodology. Similarly, the 21 percent expansion in the construction sector is underpinned by a 15.32 percent increase in cement sector output and a 58 percent rise in PSDP expenditures, indicating tangible real activity rather than a purely statistical artifact. Overall, sectoral GVA trends are data-driven and fully reconciled with the QNA framework.
Short-term import/export fluctuations should not be interpreted as direct GDP signals, as imports include capital goods, intermediate inputs, and energy necessary for production. While GDP measures domestic value-added, not trade balance, a rise in imports for production can coexist with genuine domestic growth.
EPBD criticism focused on alleged “import-dependent assembly and subsidy-driven growth”. QNA methodology incorporates all physical output and valueadded components, including utilities, construction, and manufacturing.
Subsidies, deflator adjustments, and administrative data are standard in international GDP accounting and do not artificially inflate growth.
Sectoral breakdown shows real production expansion, supported by LSM, construction, and services indicators.

Institutional credibility and transparency

Quarterly National Accounts are reviewed and validated through the National Accounts Committee, ensuring transparency, peer review, and institutional credibility. Estimates are revised as more comprehensive data becomes available, consistent with global statistical best practices.

Concluding remarks

The critique advanced relies selectively on perceptions and partial indicators, while overlooking the comprehensive and data-driven framework underpinning GDP compilation. The Q1 FY2025–26 growth estimate of 3.71 percent is methodologically robust, grounded in official sectoral data, and reflects genuine economic activity across agriculture, industry, and services.

Differences between headline GDP growth and movements in external trade or selected sub-sector indicators are a normal feature of national accounts compilation and do not, in themselves, call into question the reliability of the reported growth. Overall, the estimates provide an accurate and credible assessment of economic performance for the quarter, based on the best available information. In line with established practice, these quarterly estimates will be reconciled with the Annual National Accounts for FY2026, consistent with the adjustments undertaken during FY2025.