Playing numbers

Playing with statistics is an easy game with serious consequences. The Government has often dabbled in this task to make the economy look more prosperous, particularly when it comes to poverty, employment and cost of living statistics but it leaves few convinced.  

It was reported over the weekend that economists have cast doubts on the manner in which Sri Lanka’s inflation index is calculated and on forecasts of foreign direct investments in the Central Bank (CB)’s annual report for 2011.

The Department of Census and Statistics has revised both the CCPI (Colombo Consumer Price Index) and the Core Inflation Index, used mainly for policy purposes, the report, released on Monday said.

In response, Opposition MP and economist Eran Wickremaratne has alleged that the Central Bank is changing the weightage. Giving an example, he has had pointed out that Year on Year inflation rose to 8.4% in April and fell to 4.9% in December, which is difficult to believe, given the actual prices of goods and services.

He has also raised issues about the way economic growth and other indicators are calculated.

Accordingly, he charges that the Central Bank has made exclusions in the base year and also in the Core Inflation Index.

Referring to the CCPI, the report said the weight of the largest sub-group ‘Food and non-alcoholic beverages’ dropped to 4% in the new index from 46.7% in the previous index. Further, the weights of health, recreation, culture, and education also reported decreases while all other categories reported increases in their weights.

It said simultaneously the Core inflation index, which is mainly used for policy purposes, was also revised. Instead of excluding entire food and energy items from the overall CCPI basket, the new core inflation index is compiled by excluding the items of fresh food, energy, transport, rice and coconuts from the basket.

Prof. Sirimal Abeyratne from the Economics Department of the Colombo University said it was difficult to believe that foreign investment had gone up last year (to US$1 billion) when the investment climate was not so conducive for investment. “There were a few hotel projects but beyond that there was little investment,” he said.

Some of the main challenges this year, he noted, would be the pressure on internal finance (bank borrowings, etc.) and external borrowings with foreign exchange markets unsteady. Local bank borrowings rose sharply to Rs. 191.8 billion last year from the projected Rs. 42 billion while approved estimates of borrowings this year are listed as Rs. 64 billion though it is seen at the 2011 level or even higher.

Wickremaratne also referred to the gap in domestic savings and believed it would be difficult to raise the $1 billion projected by the CB through a combination of two-tier capital by commercial banks, stock market investments and long term financing.

Added to this, the Government insists that poverty is around 7% but statistics from Samurdhi Authority shows that 500 000 families in Sri Lanka are registered as receiving government handouts – this is excluding the north and east. On average this means more than two million people need monthly assistance from the government since they fall before the poverty line. Contradictory numbers from public departments show the discrepancy of the economic situation.

Numbers are loved because they are seen to be honest than words but clearly it still depends who compiles them if they are to reflect honesty.