WB raises eyebrows over govt’s GDP estimate

The World Bank country lead economist Zahid Hussain speaks while country director Qimiao Fan looks on at a press conference on releasing its latest Bangladesh Development Update at the WB office in Dhaka on Monday.— New Age photo

The World Bank on Monday expressed doubt and raised questions over the government’s estimated economic growth at 7.65 per cent for the current fiscal year 2017-2018 saying that the rate exceeded the country’s potential GDP growth.
The multilateral lending agency said that the potential gross domestic product growth rate or long-term capacity of growth was between 6.5 per cent and 6.6 per cent for the year.
Questions remain as to how the country can achieve such a big growth without substantial evidences for projected growth in manufacturing and private consumption.
A number of local economists and experts have also expressed doubts about the estimated growth.
Banking sector would be the most worrying sector for the country in the next fiscal year 2018-2019 and onwards as woes in the sector remained as they were, said the Washington-based global lending agency in its latest Bangladesh Development Update.
The WB released the report at a press conference held in its Dhaka office on the day.
Impact of the economic growth on poverty reduction also narrowed down as inequality in the country
increased despite higher growth over the years, it said.
There were doubts, questions and other issues to be considered about the estimated GDP growth in line with the economic indicators, said WB country lead economist Zahid Hussain.
The GDP growth was driven by growth in private consumption demand as per the government estimation but the growth in employment generation at 2.2 per cent, nominal labor income at 2.7 per cent and slower remittance than 2016 did not support the growth in real consumption, he said.
The projected nearly 7 per cent to 8 per cent per capita consumption growth was too high, he observed.
Besides, almost stagnant private investment and poor job creation also did not support the manufacturing production growth at 13.2 per cent, he said.
WB calculates the potential GDP growth taking into consideration the growth in labour force, capital accumulation and productivity.
Bangladesh’s labour force, capital accumulation and productivity have been rising at the rate of 1.92 per cent, 8 per cent to 9 per cent and 2.7 per cent respectively in recent years, it says.
Zahid said that an economy might grow beyond the potential rate in a particular year if it had either excess production capacity in the beginning of the year, increased firm level productivity or major temporary production shocks like regulatory improvements and favorable weather for agriculture.
Bubble in calculation might also increase the growth rate, he said.
‘There are no evidences of over-utilisation of capacity, any major structural shifts or increase in productivity and major temporary productivity shocks in the year,’ he observed.
WB termed Bangladesh’s growth an exception, with its lower GDP-export and GDP-investment ratio.
Countries like India, Bhutan, Iran, Cambodia and Uzbekistan, which grew over 7 per cent in recent years, achieved it with higher GDP-export and GDP-investment ratio, it mentioned.
Zahid said that though they were raising questions about the quality of the BBS data, they took the data seriously as no other agencies had the capacity to generate national accounting data.
Usually, the WB expresses doubts or raises questions about the GDP figures estimated by the BBS but finally accepts those figures saying that WB does not generate any data.
Regarding the risks and challenges of economy, he said that policy uncertainty derived from political instability or other problems in reforms might cause risks in economy in the coming days.
He said that access liquidity shrank significantly in banks due to higher private sector credit growth and lower deposit rate along with high sales of national savings tools.
Single digit lending rate was also disappearing, he said.
Banking woes including rise in non-performing loans remained unaddressed as little action was taken to penalise defaulters, improve risk management and strengthen bank management, he noted.
According to the report, Bangladesh economy remains robust as export is rebounding, remittance inflows recovering and agriculture sector looking better though private investment is not taking off.
It says that Bangladesh’s outlook remains positive.
Policy uncertainty including political instability, continued fragility in banking sector and protracted delays in infrastructure development can dampen investors’ interests, the report points out.
The report suggests tackling the banking sectors’ poor risk practices, corruption and collusion through improving supervision and legal and financial framework for loan recovery.
The report observes that the pace of poverty reduction slowed down.
With inequality in agricultural growth, more than half the population is vulnerable to falling back into extreme poverty, it fears.
WB country director Qimiao Fan said that Bangladesh was continuing its strong development trajectory, with growth solidly in the 6 per cent to 7 per cent range.
He said that actions were needed to generate double-digit growth.

Source: New Age.

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