GDP growth data ‘puzzling’

Bangladesh’s recent GDP growth data is “puzzling” and inconsistent with various indicators of the economy, South Asian Network on Economic Modeling, a non-profit research organisation, said yesterday.

The drivers of the country’s economic growth are primarily export and remittances. But the high growth rates in recent years do not match with the sluggish growth in export and remittance, said SANEM.

The government data showed a surge in private consumption in the last two fiscal years though export and remittance growth had been slow during the period, it pointed out.

SANEM Executive Director Selim Raihan said it cannot be explained why private consumption saw a sharp rise in the last few years.

“The growth in public consumption can be explained to some extent because the government is spending on big infrastructure projects. But the growth in private consumption remains a puzzle,” he said while presenting ‘SANEM’s Quarterly Review of Bangladesh Economy’ at the Brac Centre Inn in the capital.

SANEM also voiced concerns over the current problems in the banking sector.

“High non-performing loans [NPLs], institutional weakness and political patronage characterise the banking sector,” the organisation said in the review.

It mentioned that the recent government decisions such as changes in the rules on NPLs and concessions to defaulters would be counterproductive.

The research organisation’s observation came around two weeks after the Centre for Policy Dialogue, a private think tank, questioned the current year’s growth estimate of 8.13 percent, citing incoherency in various indicators of the economy.

“We are walking backwards from the international standards. We will face a bigger problem,” Selim said.

Citing Bangladesh Bureau of Statistics data, SANEM said the growth in private consumption was estimated at 11.41 percent in fiscal 2017-18 compared to 7.43 percent in the previous year. It was 3 percent in fiscal 2015-16.

“This is a big concern that we see high growth in private consumption despite low growth in export and remittance. The second concern is that the government data shows high growth in the manufacturing sector though the growth in export and private investment has been sluggish,” said Selim, professor of Economics at Dhaka University.

In the review, SANEM mentioned that domestic demand can become a driver of growth with sizeable improvement in per capita income. But in that case, overall growth rate may fall.

Bangladesh is yet to reach that level. Domestic demand cannot be a driver of growth in a low-income country like Bangladesh, said Selim.

SANEM questioned the high growth rate of 13.4 percent in the manufacturing sector in fiscal 2017-18, saying the export growth was 5.81 percent in that year. Private investment growth was also slow during the period.

“Then what are the drivers of growth in the manufacturing sector and what are the sources?” Selim questioned.

“We cannot match the data. We are struggling.”

The organisation said the business environment has not improved to such an extent that could support the data on high growth in the manufacturing sector.

“We do not see any major improvement in the business environment. Rather, we see deterioration in some areas. Then how could we explain the growth in the manufacturing sector. All these led to a very puzzling scenario,” said Selim.

“The BBS should revisit its data,” he said.

SANEM Chairman Prof Bazlul Haque Khondker said there have been a lot of questions regarding growth and its sources.

“We are not getting full answers about what are the drivers of our growth,” he said.

SANEM said the pace of poverty reduction is much slower than that of GDP growth rates.  Also, the pace of employment generation is slow.

“The growth that we see is creating inequality in the society … The whole thing raises questions about the quality of growth,” noted Selim.

“It appears that the obsession with GDP growth numbers puts the policy makers in the comfort zone. This has created a reform-averse mentality.”

SANEM said reforms are necessary in tax system, banking sector and trade policy.

Selim stressed that it was high time that the government brought reforms many of which, he said, can be unpopular and go against vested interests.

“We want to see reflections of this in the upcoming budget.”

The organisation pointed out falling tax-GDP ratio and sluggish growth in revenue collection in recent years.

Referring to the new VAT law, Bazlul Haque said it had been passed in 2012 but is yet to be implemented.

Now that the National Board of Revenue (NBR) is going to implement it from the next fiscal year, the Federation of Bangladesh Chambers of Commerce & Industries raised questions whether the NBR is prepared to do so, he said.

“These questions are unwarranted. These issues were supposed to be addressed much earlier.”

The organisation suggested that the government take up policies and programmes for employment generation and increase spending on education and health.

SANEM Research Director Prof Sayema Haque Bidisha also spoke at the programme.