Can the growth rate be sustained?
Hasnat Abdul Hye | Published:
April 09, 2016 16:57:22
October 25, 2017 05:36:19
After posting a year-on-year growth rate around 6.5 per cent for the past several years Bangladesh economy earned the reputation of being stable, weathering adverse situations. When even the economic powerhouse and the second biggest economy in the world, China, settled for 6.5 per cent growth this year as the 'new normal' Bangladesh seemed to have no ground to grumble. Considering the fact that only India in Asia has performed better than Bangladesh during the current fiscal in respect of annual growth rate there was reason to be complacent. Economic updates by the World Bank and the Asian Development Bank forecasting growth of the Bangladesh economy at 6.5 and 6.7 per cent respectively seemed to buttress the expectation about economic prospects around that trajectory at present and the near term. But policy makers in Bangladesh responsible for guiding the course of the economy has not been complacent seeing the economy mired around 6.5 per cent annual growth, however flattering it may be. This is because of the imperative of achieving growth rate of 7.0 per cent and beyond in order to alleviate poverty from the present 25 per cent of the population and to lift per capita income above US$ 1200 to graduate beyond least developed country (LDC) status. So, it was sweet music when Bangladesh Bureau of Statistics (BBS) came out recently with the latest findings on the national income accounts.
According to provisional estimate of the BBS the gross domestic product (GDP) growth in Bangladesh touched 7.05 per cent breaking the 6.0 per cent plus cycle of economic growth while the per capita income reached $ 1466 well before the completion of the current fiscal. This is a matter of gratification for everyone concerned with the growth of the economy. A milestone has been crossed as the growth rate above 7.0 per cent has been reached for the first time since independence. Bangladesh had been trapped by 6.0 per cent plus equilibrium trap for the past several years indicating a jinx at work, as it were. By attaining 7.05 per cent growth rate the country has been able to overcome this trap. Along with GDP growth the per capita income has also risen to $ 1466 from the benchmark figure $ 1316 in the current fiscal.
Bangladesh economy reached 6.55 per cent in annual growth during fiscal 2014-2015 up from 6.06 per cent in fiscal 2013-2014, 6.01 per cent in fiscal 2012-2013 and 6.52 per cent in fiscal 2011-2012. These figures show that even to break beyond the 6.50 rate Bangladesh economy had to struggle in recent years. But to its credit the growth rate has been consistent for the last several years. Looking at the sectoral growth it appears that agriculture witnessed 2.60 per cent growth in the current fiscal compared to 3.33 per cent in the previous year. The slack in this sector has been compensated by positive change in annual growth in the industrial and services sector which posted 10.10 and 6.70 per cent growth in the current fiscal (until December). The percentages of growth rates for the two sectors in the previous fiscal were 9.67 and 5.80 per cents respectively. Growth rates in other sectors have kept up positive trends as revealed by the following figures: growth rate of the fisheries sectors 6.19 per cent, mining and quarrying 12.06 per cent, manufacturing 10.30 per cent, electricity, gas and water supplies 11.15 per cent and constructions 8.87 per cent. Continuing political stability and pragmatic macro-economic management have been flagged as the main reason behind the steady growth in most of the sectors. The hardworking people of the country have been credited with the success achieved in economic growth. The overall size of the GDP at current market prices for 2015-2016 (incomplete) stood at Tk 88305.44 billion (8830544 crore) which was Tk 82486.24 billion (8248624 crore) in fiscal 2014-2015.
Some observers commenting on the figure of annual economic growth revealed in the BBS estimate have expressed doubts over its reality and whether the upward move can be sustained in future. They have pointed out that the main reason behind the growth rate achieved has been the sudden rise in expenditure in the services sector, particularly for salary and wages of public sector employees. It has been argued that such increases are not going to take place every year in future acting as the main ballast in the services sector. Moreover, it has been pointed out by them, indirect indicators of the economy do not support the data for 7.05 per cent growth of the economy. In this connection the slow growth in tax collection and declining trend in remittance growth have been highlighted. While the former may act as a brake on public sector investment the latter may detract from consumption hindering production, it has been argued.
It seems that the negative factors in the economy have been overstressed by the observers critiquing the new growth rate. They have failed to recognise that the agriculture sector has the potential to post positive growth in future given price incentives and export prospects for the produce of the sector. While public sector expenditure for payment of salaries and wages may not register a rise by the same degree as during the current fiscal, public sector investment is likely to go up following improvement in tax collection on the back of current reforms. The recent fall in interest rates for private sector credit is likely to raise investment in the sector from the current rate of 22 per cent of GDP.
The industries sector, backed by garments, is certain to hold firm in its contribution to overall growth. The steady growth of the export sector is assurance of a powerful driving force for the growth of the economy. Even the observers having scepticism about the achievement of the new growth rate admit that exports have shown steady growth and is likely to remain on course in future. Infrastructures, the major drag on economic growth, are likely to mark improvement in the near future, given the many projects under implementation with both domestic and external resources. Bangladesh economy may not at present be experiencing a runaway growth but neither it is stagnating, not to speak of regressing. The 7.05 per cent growth of the economy revealed by the recent BBS estimate is not a mirage nor is it a mere flash in the pan. It is not a question if this rate is sustainable in future but whether it can be exceeded from year to year.