Opinion

Gunning for growth
Mizanur Rahman
19 May,2016

As headline figures go, GDP growth attracts its fair share of detractors and devotees. As with almost every debate in the field of economics, each side will have something compelling to support their view. Critics point out its apparent disconnect from the ‘real’ economy, where jobs are created (or lost), prices fluctuate (or not), and consumption is the driving force (always). Proponents on the other hand tend to be convinced on two points: that GDP growth should be the Holy Grail of any government’s overall economic policy, as the greatest guarantor of increased prosperity that, according to them, trickles down through an economy and lifts people out of poverty. Or so they would have us believe.

Hence its actual importance in shaping a nation’s fortunes or even merely indicating them is questionable. It always will be. Yet the easy accessibility and universal application of the measure of output in an economy, premised upon every economic activity producing an output valued in money, has gained massive acceptance as almost the first piece of . Add ‘em all up. Minus the interest payments, and you get Gross Domestic Product. GDP. Perhaps the most quoted figure (varying of course, from country to country) on the planet. Certainly the one most obsessed over. Even dismissed. At time manipulated. Or hailed.

Now while the arguments over its worth or meaning are myriad, what you don’t actually expect is any disagreement over its measurement. This is where transparency over the method assumes paramount importance. The note of scepticism with which a number of economists met the announcement made last week – in nauseatingly glowing terms by Planning Minister AHM Mostafa Kamal, that GDP growth was breaking through the 7% barrier  – should disturb us as Bangladeshis. Lotus Kamal, as the planning minister is more popularly known,  chose to ignore the one previous occasion, in 2006/7, that it did actually happen. The planning minister was not going to let ‘1/11’ end up having one over on what he was about to present in front of Prime Minister Sheikh Hasina.

So in Kamal’s version, Bangladesh broke its economic ‘growth trap’ of 6% for the ‘first time since independence’ as it had ‘already crossed 7%’ in the first nine months of the current fiscal year. “I think Bangladesh will now be treated as one of the strong economies of the world. I hope the World Bank (WB), the Asian Development Bank (ADB) and other global agencies will now praise our impressive growth,” he added.

“This is a matter of pride for the nation that we have achieved 7% GDP growth for the first time,” Planning Minister AHM Mustafa Kamal said yesterday after the National Economic Council (NEC) meeting with Prime Minister Sheikh Hasina in the chair. Asked about the reasons behind the higher growth, Kamal attributed the achievement to the existing political stability in the country.

As per the provisional estimate of the Bangladesh Bureau of Statistic (BBS), taking nine months’ economic growth into account, the GDP growth will stand at 7.05% for the fiscal year 2015-16, up from 6.55% in the last fiscal year. Terming it a ‘milestone’ for the country, the minister said: “This is one step forward to take the nation in the global arena as the GDP growth rate for the current fiscal year has already surpassed the fiscal target of 7%.” He spoke as if the target for the entire fiscal had been achieved in three quarters, such that not adding another dollar in the 4Q would still see the 7 percent growth maintained for the current fiscal.

He said Bangladesh had long been “chained” in the 6% growth trap.

“To my knowledge, this is the highest GDP growth rate achieved by the country after the independence.” Fair enough. As long as we acknowledge there are some gaps in your knowledge dear minister. The problem really, was that the language of GDP growth was not applied by the minister in relaying the information he did. For example, what was the growth figure, annualised or otherwise, for each of the first three quarters till now? Where does it stand over the three quarters? Instead we heard him invoke history and the greatness of mankind. That is not the way to communicate economic data.

Former caretaker government adviser ABM Mirza Azizul Islam went on television and very bluntly said, “I do not trust this number.”

Whose

Thereafter what we saw, within days of Kamal’s Gung-Ho announcement, was a massive 10 percent downward revision for the annual budget! The government cut down the current national budget to Tk 265,000 crore as revenue receipts may finally stand far below the mark. Another factor taken into account is slow execution of the annual development programme (ADP). A high-level meeting Sunday did the final trimming of the budget for the outgoing financial year (FY), 2015-16, and also drew an outline for the next one with main indicators of the country’s economic health.

The tax revenue for the current FY is now feared to come down to Tk 150,000 crore from the original target of Tk 176,000. But the government expects to enhance the amount to Tk 177,000 crore in the next fiscal year, beginning July 2016. The government envisages Tk 243,000 crore as total tax and non-tax revenue for the next fiscal year, 2016-17. The total budget outlay is estimated at Tk 340,000 crore, as forecast already.

The revision of the current and the revelation of next year’s macro- indicators came at a meeting of the national committee on budget monitoring and resource allocation of the finance division on April 9. Finance Minister AMA Muhith presided over the meeting at the finance division. Commerce Minister Tofail Ahmed, senior secretary at the finance division Mahbub Ahmed, chairman of the National Board Revenue (NBR) Nojibur Rahman, central bank governor Fazle Kabir and other high officials were present.  In keeping with the downsized national budget the government has already cut its annual development programme (ADP) to Tk 910 billion for the current fiscal year, down by more than 7 percent from the original estimation.

Mirza Azizul Islam, who is assuredly not someone who is out to challenge the way things are just for the sake of it, explained that the indirect indicators of the economy do not support the data. Since tax collection reflects the condition of an economy, the NBR’s botching of its target is a tell-tale sign of economic underachievement. He said production has a relation with consumption. There is also a declining trend in remittance inflow (see below). As a result, the remittance data does not show a rise in consumption, Azizul Islam said, adding that the growth of industrial raw material and capital machinery import also is slower than the July to Feb of the last fiscal.

Adding further credibility to the sceptics’ view, the World Bank this past week came out with an even more starkly contrasting view of the economy to the one presented by the Planning Ministry, by  downgrading its estimate of Bangladesh’s GDP growth in the current fiscal year to 6.3 percent – now starting to sound paltry really -from the 6.7 percent it had forecast earlier in January. More importantly, following growth of 6.5 percent in FY15, if the WB estimate for the current fiscal, 6.3 percent, is proved correct, it will actually represent slowing growth in the Bangladesh economy. Not quite a disaster. But a setback that may well sap it of the momentum necessary to maintain its huge population.

Doing it by numbers

Mostafa Kamal said both industrial sector and service sector performed impressively with a 10.10 per cent and 6.70 per cent growth respectively. The growth of agriculture sector in the overall economy was also estimated at 2.60 per cent, he added. According to BBS, the share of industrial sector to the GDP has increased to 28.56 per cent in the current FY from that of 28.15 per cent in the last FY.

The contribution of service sector has also risen to 56.69 per cent in the current fiscal from 56.35 percent in FY 2015.

However, the contribution of agriculture sector to GDP has dropped to 14.75 per cent in the current FY from that of 15.51 per cent in the last FY, according to the BBS provisional estimation.

Export earnings recorded a growth of 8.92 percent (y-o-y) in July-February 2015-16 from its level of July-February 2014-15. The export items that registered a positive growth during July-February 2015-16 include woven garments, knitwear, engine.& electric goods, raw jute and chemical products. On the other hand, leather, frozen food, agricultural products, jute goods (excl.carpet), and tea experienced a negative growth during July-February, 2015-16 compared to the same period of the previous year.

The twelve-month average inflation decreased to 6.15 percent in February 2016 from 6.20 percent in January 2016 while the point-to-point general inflation decreased to 5.62 percent in February 2016 from 6.07 percent in January 2016 due to a sharp decrease in food inflation to 3.77 percent from 4.33 percent, along with a decrease in non-food inflation to 8.46 percent in February 2016 from 8.74 percent in January 2016.

Remittance receipts decreased by 1.49 percent during July-February 2015-16 and stood at USD9.77 billion compared to the period of the previous year. Remittance receipts decreased by 1.42 percent (m-o-m) and stood at USD1.13 billion in February 2016 compared to the earlier month and also decreased by 4.65 percent (y-o-y) compared to the same month of the previous year.

Current account balance recorded a surplus of USD2.27 billion due to higher export earnings and an improvement in the income from the services and also in the primary income.