World Bank Lead Economist Dr Zahid Hussain (R) speaking at the World Bank office in the city on Monday — Collected The World Bank has expressed its doubt over the Bangladesh's 7.65 per cent economic growth projection for the current fiscal year (FY) raising questions about data accuracy.
"The robust growth projection for the current fiscal is doubtful as some government statistics doesn't match with it (projection)," said the bank's lead economist in Dhaka Zahid Hussain.
He made the remarks while presenting the "Bangladesh Development Update" Monday in Dhaka.
Mr Hussain questioned a series of government data such as higher manufacturing growth, lower service sector growth compared to its higher job creation, higher growth amid lower labour income and remittance inflow, production capacity of the industrial sector, and almost stagnant investments.
The Bangladesh Bureau of Statistics, the state statistical agency, has recently said that Bangladesh's gross domestic product (GDP) is expected to grow at 7.65 per cent rate in the current financial year 2017-18, which is even higher than its 7.5 per cent target.
In contrast, the Washington-based lender said that Bangladesh's GDP growth is expected to grow at 6.5 per cent rate in the current FY2018.
"It is a manufacturing growth puzzle," Mr Hussain said.
"… Only 0.2 million jobs in the industrial sector has been created. Besides, private sector investment is almost stagnant. And the production capacity has not picked up suddenly. So how has the country's manufacturing sector grown at 13.2 per cent in FY2018 from 10.97 per cent in FY2017?" he questioned.
"The BBS in an enterprise survey in 2013 showed that Bangladesh's enterprises have been utilising its more than 80 per cent capacity for production. In the initial period of the year, it also showed that the production capacity has not picked up. But how at the later stage of the ongoing fiscal, the capacity has picked up enormously is a matter of curiosity" Mr Hussain added.
The WB economist said the service sector growth rate had declined to 6.3 per cent in the current FY2018 from 6.7 per cent in FY2017, its employment rose by 1.76 million or nearly 8.0 per cent in the current fiscal.
He said that the BBS has showed a 7.0-8.0 per cent per capita consumption growth in the current fiscal, although it was recorded at 1.4 per cent on an average between 2010 and FY2017.
Besides, the government data showed a 2.2 per cent employment growth in 2017, a 2.7 per cent nominal labour income growth and lower remittance growth in FY2018, he added.
He wondered whether the economy had superseded its capacity or it was a "bubble" for achieving the 7.65 per cent GDP growth against this backdrop.
Referring to the countries in the "7.0 per cent plus GDP growth club", the bank's economist said, "Bangladesh is the only exceptional country, which has expanded through the higher consumption growth. But all other countries either grow through maintaining higher investment or higher investment and remittances combined."
About the inflation data, the update said that although there is stability in headline inflation, there is a negative correlation (volatility) between food and non-food inflation.
About the banking and financial sector, the bank's lead economist said that with the higher non-performing loan, the banking sector is facing liquidity crisis with lower deposit growth and higher call money rate.
The "constrained" monetary policy of the central bank has now turned into an "expansionary" one as the banking sector has reduced the cash reserve requirement (CRR) and proposed to cut the Advance-Deposit Ratio (ADR) from 85 per cent to 83.5 per cent by March 2019, he noted. This could stoke inflation, he said.
The continuation of the higher rate for the national savings certificate, and re-capitalisation of the state-owned banks is not a good decision of the government, Mr Hossain said.
The money should otherwise be invested in human capital development, he added.
He said that although the country is projected to grow at an impressive 7.65 per cent rate in the current FY2018, the poverty reduction pace has fallen,
"The economy is growing at higher level. But the poverty rate in Rangpur has increased and is almost stagnant in Rajshahi and Khulna divisions."
Since the Gini-coefficient-a measure of inequality-has increased and the poverty situation in those three divisions are still in bad shape, the income inequality is increasing, he added.
The Bangladesh Development Update, however, said the country is continuing its strong development trajectory, even as the pace of poverty reduction has slowed down sustained economic growth driven by exports, domestic demand and remittances.
Despite challenges, the country maintained robust growth. Exports have rebounded, primarily led by the Ready-Made Garments (RMG) sector - with a 6.33 per cent growth in FY2018, compared with 4.0 per cent in the previous year, according to the report.
A 17 per cent growth in remittances, with more Bangladeshis going to work abroad, combined with effective action against illegal money transfers, may have contributed to the recovery, the report said.
The WB report identified some macro stability challenges including a rise in inflation due to increase in international inflation as well as expansionary macroeconomic policies and persistent external deficit due to continued growth in payments for food, industrial raw materials, capital goods and machinery imports.
The country needs to create an enabling environment to increase female labor force participation, improve the business environment, strengthen the regulatory framework, and enhance infrastructure project management, it said.
Tackling the banking sector's poor risk practices through supervision and improving the legal and financial framework for loan recovery are also imperative, the lender said.
Increased caution on the monetary policy stance needed on growing concerns for rising inflation, surging global crude oil prices and fiscal slippage, it further said.
WB country director Qimiao Fan said that tax revenue as a share of GDP remains among the lowest in the world.
"As the economy generates the wealth of a middle-income country, it also needs to generate the revenue for public services and investment of a middle-income country," he said.
"The means of financing the deficit, mainly through the issuance of national savings certificates, has become increasingly expensive," he said, adding that it also brings significant distortions in the financial sector, characterised with liquidity crunch and double-digit lending rates,
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