Reputation
Among economists, econometricians and statisticians who conduct serious research on the Caribbean and expend considerable effort mining the region’s economic datasets, Guyana has held the unsavory reputation for decades now, of being the country where political manipulation and Government misuse of official statistics are carried to their worst extreme.
This requires them to be very cautious when relying on official datasets and is particularly evident in respect to those for income,price, employment, trade, production and national accounts.
On previous occasions in this column I have had cause to register my own skepticism about non-transparent official data. I have also expressed concern about the quality, regularity, and timeliness of the official data. Readers may also recall other controversies in the media in regard to the consumer price index and growth rates.
Two recent presentations of official economic data have however, struck a particularly discordant note. I shall discuss both of these in this and the coming week’s column. The one I shall focus on today is the recent statement by the Minister of Agriculture: “In 2010, the Guyana economy (at current prices) was more than 15 times the size it was in 1991” (Chronicle, September 27, 2010).
In support of this boastful assertion an accompanying Table was presented that indicated the GDP in current prices for 1991 was valued at G$33,622 million, and by 2010 this had increased to G$460,072 million. Indeed one caption on this news item read: “PPP says economy grew 15-times since it took office”
Lies and Statistics
This statement is, to say the least, a tawdry and vulgar misuse and abuse of statistics. It reminds me of the quotation attributed to Disraeli: “There are lies, damn lies and statistics”! I believe, however, even the most casual Guyanese reader would find the purported message contained in this statement outrageous, for two very good reasons. One of these is specific to the Guyana situation, and the other is more general, as it relates to the standard usage of GDP as a comparative measure of economic performance over time for the same economy. I shall elaborate on these reasons in what follows below.
Before I do so, I should confess that I find it difficult to accept (as some have urged) the statement cited above was made in ignorance, with little or no awareness of how ridiculous it would be seen by Guyanese!
From the time (decades ago) Guyana’s national accounts were first constructed and officially released it has been made known to the public that when GDP is measured in current prices (or, as it is termed nominal GDP) it should not be used for comparisons over time for the same country. Why is this so?
Simply put, if the prices of all the items that are used to measure GDP have increased, but there is no change in the actual production of these items, the GDP measured in current prices (or nominally) would have increased. However, the real GDP would not have changed.
Why not? As stated in the example, there has been no increase in output so no one is better off; in other words the country has not produced more output.
It is for this reason that when GDP is used to make comparisons over time for the same country, real GDP is the correct measure to be used. To use current or nominal GDP for this purpose would be a gross misuse of statistics.
Real or nominal GDP
How is real GDP arrived at? Real GDP is arrived at by deflating the current (or nominal) GDP with a price index in order to eliminate the effects of changes in prices. For this purpose a GDP deflator index is constructed. This index is not the same as the cost-of-living or the consumer price index. The latter captures only changes in the price of consumer goods and services. The GDP deflator however, captures the movement of all prices for all items that make up the GDP, including the prices of intermediate items, which are not sold as final consumer goods and services.
Of course if the comparison is being made between different countries, the procedure would be to convert national GDP measures into their purchasing power values. This procedure however is not involved in the present case.
Rebased GDP (2006 prices)
The second and Guyana-specific reason why a comparison of GDP at current prices for 1991 and 2010 would not stand scrutiny is that the Guyana national accounts have been re-calculated and rebased on the structure of prices in 2006. This exercise replaced the former measurements based on 1988 prices. I have dealt with this rebasing exercise in this column on several previous occasions. I do not intend to repeat here, save to say (as I pointed out earlier) the net effect of the rebasing exercise in 2006 has been that national accounts estimates since then (2006) have become statistically larger by about two-thirds to three-quarters for various components of these accounts when compared to the measures based on 1988 prices.
Conclusion
For both the reasons given above therefore, a comparison of GDP on the basis of current prices for the years 1991 and 2010 can be no more than an effort aimed at manipulation of the official economic statistics for propaganda purposes.
Propaganda of this sort however, does more harm than good. It backfires because the ordinary experiences of the Guyanese public would have made them realize that their economic condition has not improved by 15 times since the PPP has been in office. In truth, mathematically, the Guyana economy (GDP) would have had to grow at an annual average rate of about 14 percent over the past 18-19 years for this to have happened. And, if this had occurred, it would have been a world record – the best performance by any country since national accounts have been annually constructed!
Next week I will examine a second example of this misuse and abuse of official economic data.
