ADB estimate too cautious

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Hasnat Abdul Hye Ever since the first publication of the Asian Development Outlook (ADO) by the Asian Development Bank (ADB), the annual report on the economic performance of Asia and those of the member countries of ADB has received venerable reception by governments and institutions. Even when disagreements have occurred on some of the observations and conclusions the sincerity of purpose and the meticulous procedure of collection of data have not gone without appreciation. The ADO Update 2013 will be no exception to this, it can be said. For Bangladesh, the conclusions in the ADO Update regarding the gross domestic product (GDP) will attract most attention as it is of the essence in the economic growth of the country. ADB's estimate showing economic growth of 5.8 per cent during 2013-2014 will be taken with a grain of salt by the government as it is below the official target of 7.2 per cent. Others concerned with economic growth may also look askance at the mention of a lower growth rate than officially projected. A shortfall by 1.20 percentage points for the projected rate is a major reduction and as such the causes attributed to this will come up for close scrutiny and analysis. The ADB in its previous report had projected a 6.0 per cent GDP growth which was also below the government's goal of achieving a 7.2 per cent growth during the current fiscal. As is well known growth is the function of investment, both public and private. It is promoted or constrained by fund for investment and also by prospects of profit. In the ADO Update there has been no or very little mention about savings and foreign capital. According to the ADB, private investment has suffered and will suffer because of political uncertainty ahead of the next general election and also due to continued shortage of power and gas. As a result, industrial growth is expected to slow down to 8.2 per cent. Weaker external (export) and internal (consumer demand) demand have been cited as causes for the shortfall in investment. On the other hand, public investment is slated to stagnate because of capacity constraints. The ADB have also said that agriculture growth will decline because of drop in crop and horticultural production. It has, however, been projected that the agriculture sector will expand at the rate of 3.3 per cent which is higher than 2.2 per cent achieved in the last fiscal. In view of the higher growth prospects for the sector as a whole, mention about drop in crop and horticultural production depressing the growth rate of the sector appears contradictory. The Update Outlook has projected a slower growth rate in the service sector to 5.5 per cent down from 5.7 per cent achieved in last fiscal due to political unrest. According to the Update, export growth will slow down to 7.0 per cent following a weaker expansion of garment exports because of putative adverse buyer reaction in the aftermath of the fatal factory accidents in November 2012 and April this year. The Update projects a lower remittance growth decline to 8.0 per cent in the current fiscal. All these lead to depressed investment resulting in a lower growth than officially estimated by the government. The Updated may be criticised for drawing an investment scenario based on incorrect assumptions about the weightage given to various factors that contribute to GDP. It is incorrect to assume that weak internal and external demand will hold back investment both in the public and the private sector. Internal demand in the form of consumer demand has not been the driving force behind investment over the last two decades. After de-regulation and allowing the forces of free market operation it is the supply side of the economy that has taken care of growth, by and large. The supply side of the economy continues its dynamism despite occasional hiccups and it has outran the negative in the demand side. Moreover, consumer demand is on the rise, spurred by increase in per capita income, however incremental it may be. As regards external demand, far from weakening, there has been a steady growth as seen by export figures on a year-to-year basis. Even during the worst phase of economic slowdown in America and Europe exports did not decline and they are not likely to do so in the near future if the available data is anything to go by. The garment sector, the flagship of Bangladesh's exports, has overcome the initial handicap following the fatal accidents and it has stood its ground in relation to competing countries. With continued support given by the government, the sector is expected to maintain its historic trend in exports and through its contribute to GDP. Though suffering from contradictory findings, the Update has pointed out the robustness in the growth in the agriculture sector. Contributing about 25 per cent to GDP, agriculture has been the mainstay in the economy as about 45 per cent of the labour force is employed in the sector. Unlike industry and services sector, agriculture is least disturbed by stoppages caused by political strife and law and order problems. ADB's apprehension about political unrest having negative impact on the economy at least does not apply to agriculture. Remittance growth has been estimated in the Update to decline during the current fiscal. But this flies in the face of facts and figures. According to a World Bank report just published, Bangladesh has ranked among the top ten countries in respect of remittance earnings. The country received US$ 3.27 billion in remittance during July-September 2013 which is higher than the figure (US$ 2.97 billion) for the corresponding period last fiscal. With Saudi Arabia and Malaysia willing to employ more wage-earning labour from Bangladesh remittance is going to be higher during the current fiscal. It is not known on what basis ADB has forecast a lower volume of remittance earnings in the near future. In ADB's estimate of the performance of Bangladesh economy political uncertainty and likely disturbance in the run up to the next election has played a major determining role. The apprehension about the adverse impact of political unrest on the economy is exaggerated. In the light of past experience it can be safely said that the type of turmoil apprehended by the ADB will not be for the long haul. Experience says that once the climax is reached matters will be settled, one way or the other, in the course of a few days. Neither will the crescendo to the climax be a prolonged one, again to go by past experience. Such disturbance of short duration do not affect the industrial sector negatively and leaves agriculture almost unscathed. It is the service sector which bears the brunt of such disturbances but this sector also has enough resilience to overcome the handicaps through various means, like late night operation. All in all, the impact of hartal and other disturbances on the economy will not be serious as to affect the growth of the economy. Of greater concern is the inadequate supply of power and gas and weak infrastructures like roads, ports etc. Though these have been pointed out in the ADB Update due emphasis has not been given. The ADB Update 2013 will be commended for many aspects and criticised for some. Particularly, the forecast about the GDP growth rate will not be acceptable to many. Overall, the Update appears to be too cautious. Faced with uncertain times caution should be taken as well meaning. [email protected]