CPD study on Bangladesh’s economic growth cited

Syed Jamaluddin

The Centre for Policy Dialogue (CPD) has questioned the country’s economic growth estimates prepared by the Bangladesh Bureau of Statistics (BBS) for the outgoing fiscal year. According to the CPD, gross domestic product (GDP) cannot grow at so high rate at a time when the economy had faced political turbulence in the first half of the fiscal year 2013/14. It is a surprise that the service sector grew in July-December period by 5.8 per cent in 2013/14 against 5.5 per cent in 2012/13. Service sector covered more than 50 per cent of the economy which was affected adversely during the first half of the fiscal year due to restive political programmes over the poll-time government issue.

According to the BBS estimate, agriculture has grown at 3.4 per cent. It is nearly one per cent higher than that of the last fiscal year. The BBS estimate was 8.6 per cent which is 0.6 per cent higher than last year’s. The CPD hoped that the BBS would adjust its figures at an appropriate time.

Bangladesh faced a major domestic shock in 2013/14 that caused some serious disruption in economic activities for a prolonged period. It is logical that the GDP growth rate in 2013/14 would be lower compared to that of the previous year which was a normal year. When the BBS came up with a GDP growth rate of 6.12 per cent for 2013/14, as compared to growth rate of 6.01 per cent in 2012/13, researchers would like to question the credibility of this higher GDP growth in an abnormal year.

Since the BBS knows GDP numbers best, they should also be able to explain the determinants of growth and the contributing factors. Depending on the strength of that analysis, researchers may be willing to change their minds. Until then, they remain sceptical of 2013/14 growth estimate.

The CPD is of the view that foreign aid in the pipeline should be used by the government as its cost is low. Borrowing from domestic sources leads to higher interest payment. Currently around 91 per cent of total deficit is being funded from the domestic sources.

According to the CPD, capital flight is taking place on a regular basis through pricing mechanism – over- and under-invoicing. Around $1.5 billion is taken out of the country each year. The CPD suspected capital flight as import of some items jumped abnormally in the first nine months of the current fiscal year. There is a possibility of illicit financial outflow from the country as import growth was abnormal on items having low or zero duty.

Leading economists are not in agreement with the government’s growth assumptions for the next year. The Ministry of Finance expects that political situation would remain stable in the next fiscal. Dr Zahid Hossain, lead economist of the World Bank, says that assumptions of the Ministry of Finance are not sufficient to project the economy to grow over 7.0 per cent in the next fiscal year.

According to him, the Bangladesh economy will grow faster once there is an annual investment equivalent to 5.0 per cent of the GDP. Combination of both local and foreign investment might take the economy to higher growth path. Another option is to raise productivity of the existing plants. But most of Bangladesh’s existing manufacturing plants have already utilised their optimal capacity. It is hardly possible to raise productivity further.

Another option is the expansion of capacity of the existing plants. But this will need adequate investment. As long as the causes of political uncertainty are not removed, the investor’s confidence will not be restored.

In reply to the criticism on growth estimates, the Planning Minister claimed that all areas of the economy, including the service sector, expanded satisfactorily during the outgoing fiscal year despite political troubles. He said political situation across the world, including China, Korea and the Philippines, is not good but investment was taking place in those countries. So investment in Bangladesh would not be affected.

The government aims at a higher growth rate at a time when the country’s political situation is unstable and fragile and investment in the private sector remains shy. It is determined to keep its development strategy unaffected. The BBS claims that the GDP growth rate stands at 6.12 per cent. Many economists say it will remain below 6.0 per cent in view of the political unrest that dominated the first half of outgoing fiscal.

Although the budget has presented ambitious target of growth, it will remain, according to the World Bank (WB), below 6.0 per cent. The WB has projected the growth rate for 2014/15 at 5.9 per cent. It has mentioned that the growth rate will be 6.3 per cent for India and 3.9 perccent for Pakistan during the same period.

Private research bodies have doubts about the estimates of the BBS. However, growth may exceed 6.0 per cent provided political stability returns and an increase in investment follows.

Dr Zahid Hossain said investment was slow, the garment sector was going through a transitional period and remittance growth was also sluggish. Considering all these factors the World Bank’s growth forecast was reasonable. Dr Shamsul Alam, a Member of the Planning Commission, however, said that economic forecasts made for Bangladesh by the World Bank and other multilateral agencies never came true.

But the GDP controversy is there. Researchers, think-tanks and multilateral agencies have questioned the BBS estimates of growth rates.  The BBS should, therefore, explain the basis of their estimates.

The writer is an economist and columnist.  jamaluddinsyed23@yahoo.com.au