Debate over GDP growth projections
Sunday, 30 November 2008
Late last week, the government and the central bank reacted sharply to the latest World Bank (WB) projection of country's economic growth for the current fiscal year in the backdrop of the global financial meltdown and the consequent recession in the developed economies. A WB economist in Dhaka last Wednesday made two GDP growth projections for the current fiscal year -- 5.4 per cent and 4.8 per cent, depending on the severity of impact of the external factors. The economy, according to earlier budgetary projection, was set to grow at 6.5 per cent, but the projection was, later, revised to 6.2 per cent by the central bank in view of the latest developments both at home and abroad.
The reaction of the heads of the finance ministry and the central bank to the WB projections has rather been knee-jerk. The finance and planning adviser dismissed immediately the projections, terming those to be "grossly underestimated" while the central bank governor rejected the projections next day, claiming that the WB had not made rigorous analysis before making such projections. The central bank governor was of the view that economic fundamentals such as agricultural output, remittance and exports were strong and inflationary pressure was easing. The reactions of the finance adviser and the Bangladesh Bank governor would be considered unusual by those who are familiar with the soft approach usually taken by the government or the central bank, even in the face of most unpalatable suggestions/conditions from the multilateral lenders. Critics of the multilateral lending agencies might, thus, feel tempted to shower some words of praise on the government and the central bank for taking a tough stance.
But the people are increasingly getting confused about the possible impact of the current global economic meltdown that has wrought havoc in most developed economies. The government and a section of business leaders here are convinced that the crisis would not hurt the country's economy to any major extent. But the WB and some others tend to believe that the crisis would leave a negative effect on remittance, export and external aid flow. However, the WB does maintain that the impact of the decline in income from exports and remittance on the country's balance of payments (BoP) would largely be neutralized by the reduced spending on imports. Whatever may be the case, Bangladesh, despite its very low exposure to the global financial markets, is unlikely to go unscathed from a financial crisis which is being dubbed as the most severe one after the Great Depression of the 1930s. Developments as far as its export and remittance income in the coming months are concerned, might become quite critical factors for the overall performance of the economy.
The confidence of the government and the central bank in the matter of GDP growth, as it appears, is based on the performance of the most important sector of the economy -- agriculture. The sector has escaped any major natural calamity this fiscal, and produced two consecutive bumper rice crops. Historically, Bangladesh GDP growth falls far short of the target in any financial year only in case of severe shortfall in rice production due to natural calamities. Moreover, there has not been any noteworthy impact of the crisis on the remittance flow and export orders, mainly in the apparel sector until now. But there are areas other than remittance and the readymade garments (RMG). The government has to remain watchful in the next few months and to monitor constantly the developments in other sectors, including services and manufacturing sectors and the capital market. However, much would depend on how the next elected government handles the economic issues in one of the most trying times of the world's economic history.
The reaction of the heads of the finance ministry and the central bank to the WB projections has rather been knee-jerk. The finance and planning adviser dismissed immediately the projections, terming those to be "grossly underestimated" while the central bank governor rejected the projections next day, claiming that the WB had not made rigorous analysis before making such projections. The central bank governor was of the view that economic fundamentals such as agricultural output, remittance and exports were strong and inflationary pressure was easing. The reactions of the finance adviser and the Bangladesh Bank governor would be considered unusual by those who are familiar with the soft approach usually taken by the government or the central bank, even in the face of most unpalatable suggestions/conditions from the multilateral lenders. Critics of the multilateral lending agencies might, thus, feel tempted to shower some words of praise on the government and the central bank for taking a tough stance.
But the people are increasingly getting confused about the possible impact of the current global economic meltdown that has wrought havoc in most developed economies. The government and a section of business leaders here are convinced that the crisis would not hurt the country's economy to any major extent. But the WB and some others tend to believe that the crisis would leave a negative effect on remittance, export and external aid flow. However, the WB does maintain that the impact of the decline in income from exports and remittance on the country's balance of payments (BoP) would largely be neutralized by the reduced spending on imports. Whatever may be the case, Bangladesh, despite its very low exposure to the global financial markets, is unlikely to go unscathed from a financial crisis which is being dubbed as the most severe one after the Great Depression of the 1930s. Developments as far as its export and remittance income in the coming months are concerned, might become quite critical factors for the overall performance of the economy.
The confidence of the government and the central bank in the matter of GDP growth, as it appears, is based on the performance of the most important sector of the economy -- agriculture. The sector has escaped any major natural calamity this fiscal, and produced two consecutive bumper rice crops. Historically, Bangladesh GDP growth falls far short of the target in any financial year only in case of severe shortfall in rice production due to natural calamities. Moreover, there has not been any noteworthy impact of the crisis on the remittance flow and export orders, mainly in the apparel sector until now. But there are areas other than remittance and the readymade garments (RMG). The government has to remain watchful in the next few months and to monitor constantly the developments in other sectors, including services and manufacturing sectors and the capital market. However, much would depend on how the next elected government handles the economic issues in one of the most trying times of the world's economic history.