Claim: The economy of Pakistan has shrunk from 6.1% to 0.3%.
Fact: The economy of Pakistan has not shrunk or entered a negative region but registered a comparatively lower GDP growth rate of 0.3%, as opposed to 6.1% earlier, indicating that it has experienced a slowdown.
On 25 May 2023, the Express Tribune published a story titled, “Economy shrinks from 6.1% to 0.3% under PDM govt’s watch” (archive), with the following lede:
“Pakistan’s economic growth rate plummeted to 0.3% in the outgoing fiscal year due to severe restrictions imposed on the imports in an effort to avoid sovereign default, leaving the industrial sector crippled with spillovers on the services sector.”
It also noted that the agricultural sector “posted 1.6% growth”, the “industrial sector contracted by 2.94%”, and the services sector “showed nominal growth of 0.9%”. The government “missed all sectoral targets” while the inflation rate was at a 59-year-high of 36.4%, it added.
Fact or Fiction?
Soch Fact Check investigated the claim made in the headline that the economy of Pakistan has shrunk. Misleading headlines can have a large impact as many social media users often do not open the link to the article.
It is also important to note that Pakistan is indeed experiencing economic hardship, according to multiple reports, including by Reuters.
To start with, an economy’s growth can be calculated using several different methods. The most common and widely-accepted way to measure how fast an economy is growing is through the proportion of the increase in its gross domestic product (GDP), which is the total value of everything — goods and services — produced in an economy.
According to the International Monetary Fund (IMF), “GDP measures the monetary value of final goods and services […] produced in a country in a given period of time” and “counts all of the output generated within the borders of a country”.
A positive GDP growth rate — meaning any rate above zero, no matter how big or small — indicates that the economy is expanding. A negative growth rate, on the other hand, means that the economy is contracting.
If the growth rate decreases but remains positive, i.e., above zero, it means that the economy is indeed growing but at a slower rate. So if an economy is experiencing a slowdown; it does not necessarily mean that the economy is contracting.
For example, if an individual earning PKR 100,000 receives a 1% pay raise instead of the usual 5%, their salary still increases albeit at a slower-than-normal rate.
If, however, the GDP growth rate falls from positive to negative, i.e., below zero, it means that the economy has taken a turn for the worse and is, in fact, contracting.
Shrinking, recession, and depression
In an explainer titled “What does it mean when the economy shrinks?” Motley Fool writes, “Economy shrinking happens when there is an extraordinary change in market activity. It implies that consumer demand diminishes, making an unfortunate overflow of goods, services, and human resources.”
Two quarters — two three-month periods or six months in total — of economic contraction equals a recession, the publication notes.
A “recession is a significant, widespread, and prolonged downturn in economic activity”, according to Investopedia. It adds, “A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession, although more complex formulas are also used.”
Recessions are also characterised by “higher unemployment rates and lower consumer spending”, says Forbes.
Severe and longer periods of recession can turn into a depression, “in which the decline in GDP exceeds 10%”, according to the IMF.
What do the experts say?
Professor Ahmed Jamal Pirzada, a Senior Lecturer of Economics at the University of Bristol, told Soch Fact Check, “The title of the article is indeed misleading.” In response to our question regarding a lower rate of economic growth, he said, “What you say below is indeed true: a lower rate of economic growth does not mean that the economy has shrunk but that the economy is growing at a comparatively slower rate.”
Express Tribune, therefore, should have used “economic growth” instead of “economy” in its headline. “Beyond this, the text of the article does not have this mistake,” he added.
Ammar Habib Khan, an author and macroeconomist who is the chief executive of CreditBook Financial Services and a former chief risk officer at Karandaaz Pakistan, explained that a “lower rate means at this level that the economy is flat”.
Expanding on his comment, Khan told Soch Fact Check, “GDP is essentially the total economic output of a country. If it is negative, then that means there’s contraction, i.e., the output has declined and the GDP has contracted. The current growth rate that has been announced is 0.3% [and] that’s very, very, very low… it’s pretty much nonexistent.”
He also underlined that on a per capita — or per person on average — basis, Pakistan has worsened “because each individual, each person in the country has less economic output or less income than they had last year, so if you see it in per capita terms, then actually it has been a contraction”.
On a bigger scale and not in per capita terms, “it is straight flat, neither it has grown nor has it contracted”, Khan notes.
Uzair Younus, the director of the Atlantic Council’s Pakistan Initiative, also made similar comments. Speaking to Soch Fact Check, he said, “The headline is misleading as the economy has not shrunk, but the growth rate has fallen. The article itself talks about the growth rate so the issue, in my view, is with the headline only.”
“So as long as the growth rate for an economy is positive, the economy continues to expand. A negative growth rate — something that was witnessed in the pandemic — reduces the size of the economy,” he added.
Interestingly, the headline even contradicts a comment by Dr Muhammad Nadeem Javaid — the chief economist at the Planning Commission of Pakistan — in the article, wherein he says, “It is a recession in growth, but not an overall recession in economy.”
Conclusively, while the article itself mentions that the “economic growth rate plummeted to 0.3% in the outgoing fiscal year”, its headline is significantly misleading as the economy of Pakistan has not shrunk or contracted; it’s only experiencing a slowdown.
Soch Fact Check has not investigated the authenticity of the figures provided in the article or the Pakistan Bureau of Statistics (PBS) data.
Virality
Soch Fact Check found that the link to the story gained more than 1,100 interactions across Facebook, where posts by the pages ‘Express Tribune’ (archive) and ‘Express Tribune Business’ (archive) gained close to 500 and 30 shares, respectively.
The claim was also shared on WE News (archive) and Twitter account @SouthAsiaIndex (archive). It was also posted by the verified Facebook page ‘Parhlo’ here (archive).
Conclusion: The economy of Pakistan has not shrunk but registered a comparatively lower GDP growth rate of 0.3%, as opposed to 6.1% earlier, indicating that it has experienced a slowdown but not entered the negative region.
Background image in cover photo: Shamsher Ali Niazi
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