Sustainability of GDP growth matters most
Thursday, 29 April 2010
Shahiduzzaman Khan
The row over the country's growth rate continues with the Asian Development Bank (ADB) and the International Monetary Fund (IMF) projecting the current fiscal year's Gross Domestic Product (GDP) growth downward again. But Finance Minister AMA Muhith has refused to agree to the findings of the multilateral donors saying that the country's GDP growth would definitely hit 6.0 per cent.
Meanwhile, the World Bank has also made a projection of Bangladesh's GDP growth for the current fiscal. The Bank projection is bleaker than that of ADB and IMF. It said Bangladesh will post a mere 4.5 per cent growth this fiscal due to delayed impact of global recession. ADB projected a little higher at 5.5 per cent, while IMF at 5.0 per cent.
It is to be noted here that the economic growth means more output, employment and income which results in more well-being for the people. There is no denying that most of the countries of the world want to pursue a higher growth path. Yet of late, experts have found that economic growth alone cannot bring prosperity to a nation. This is, of course, a necessary ingredient but not sufficient for people's welfare. Any growth that reduces poverty faster, produces less inequality and absorbs surplus labour to a desirable degree could be construed as 'good' growth. However, in addition to output growth -- and for poverty reduction purposes -- one needs to look at the impacts of that growth on employment and real wage. Likewise, industrial growth cannot reduce poverty unless growth is employment-intensive and inequality-reducing in nature, say the experts.
Among the South Asian neighbours, Bangladesh's performance is not encouraging as regards growth. India's projected growth rate is 8.2 per cent while Sri Lanka is expected to strike 6.0 per cent growth this fiscal. Bangladesh is expected to go at par with Nepal in growth projection. Multilateral development partners say the slowdown is expected to occur due partly to the effects of depressed external demand of Bangladesh's mainly low-end garment products. However, ADB says the economy will start to rebound from fiscal year 2011 when the economy will grow 6.3 per cent, underpinned by the global recovery and strengthened business confidence and investment. But for now, macro-economic indicators concerning Bangladesh are most likely to deteriorate gradually with the decline in remittances and exports.
Meanwhile, the Bangladesh Bank (BB) governor rejected the growth forecasts by the World Bank and the IMF saying the economy is poised to grow around 6.0 per cent this fiscal, despite global meltdown. The central bank is still upbeat about a steady growth, as it sees fewer bumps in the two remaining months of the current fiscal year. But the multilateral donors have stated in their latest reviews that the global economic recession is already having a knock-on effect on Bangladesh's two main economic levers -- exports and remittance -- with its recovery seeming to be unlikely before 2011.
Whatever projection for GDP growth stands for the country, the government would certainly need to take some precautionary measures to stave off any severe adverse fallout from the global meltdown on the Bangladesh economy. A flexible budget for the next fiscal year would be considered a befitting response to the looming economic challenges so that it could decide on priorities later to help offset any possible impacts of the recession. Though Bangladesh is not much integrated into the global financial markets, yet it can hardly escape the fallout from the turmoil thereof, in the real economic sectors of those countries that are the main buyers of its products and also, directly and indirectly, main providers of funds for its development activities.
It is thus expected that the government would take steps to streamline its expenditure to create more jobs to help the poor get out of poverty. One of the development challenges of the government does unquestionably lie in raising public expenditures in the annual development programme (ADP). More funds do need to be channelised efficiently to the market. For that matter, the line ministries should have more institutional capacities to implement ADP and raise public sector infrastructure investment. Rural infrastructures, including rural roads and irrigation facilities, power and basic urban services are some of the areas where the government will have to increase its expenditure.
Social safety net programme could be linked to rural infrastructure and job-creating activities for long-term growth and poverty reduction. Targeting such a programme will be a critical area for action. All concerned expect that the government would extend all-out support to small and medium enterprises (SMEs) for rapid growth and job creation. If ongoing power and gas crises are not addressed immediately, it would hurt domestic production and hold back medium-term growth prospects. For this purpose, public investment in the power sector assumes a critical importance as foreign direct investment in the sector is less likely during the recession. Undertaking further reforms in local governance and enhancing local government capacity should also merit a priority attention in order to ensure efficient use of public resources.
Economists say the economic growth rate could be raised from 6.0-7.0 per cent to 8.0 per cent by raising domestic savings and investment. Instruments to mop up small savings need to be devised and incentive to save should be raised through reforms in financial institutions. What matters most is stability and sustainability of the growth so achieved. Investment in infrastructure such as power, roads and telecommunications will be extremely important to sustain -- and hopefully increase -- the growth rate.
szkhan@dhaka.net
The row over the country's growth rate continues with the Asian Development Bank (ADB) and the International Monetary Fund (IMF) projecting the current fiscal year's Gross Domestic Product (GDP) growth downward again. But Finance Minister AMA Muhith has refused to agree to the findings of the multilateral donors saying that the country's GDP growth would definitely hit 6.0 per cent.
Meanwhile, the World Bank has also made a projection of Bangladesh's GDP growth for the current fiscal. The Bank projection is bleaker than that of ADB and IMF. It said Bangladesh will post a mere 4.5 per cent growth this fiscal due to delayed impact of global recession. ADB projected a little higher at 5.5 per cent, while IMF at 5.0 per cent.
It is to be noted here that the economic growth means more output, employment and income which results in more well-being for the people. There is no denying that most of the countries of the world want to pursue a higher growth path. Yet of late, experts have found that economic growth alone cannot bring prosperity to a nation. This is, of course, a necessary ingredient but not sufficient for people's welfare. Any growth that reduces poverty faster, produces less inequality and absorbs surplus labour to a desirable degree could be construed as 'good' growth. However, in addition to output growth -- and for poverty reduction purposes -- one needs to look at the impacts of that growth on employment and real wage. Likewise, industrial growth cannot reduce poverty unless growth is employment-intensive and inequality-reducing in nature, say the experts.
Among the South Asian neighbours, Bangladesh's performance is not encouraging as regards growth. India's projected growth rate is 8.2 per cent while Sri Lanka is expected to strike 6.0 per cent growth this fiscal. Bangladesh is expected to go at par with Nepal in growth projection. Multilateral development partners say the slowdown is expected to occur due partly to the effects of depressed external demand of Bangladesh's mainly low-end garment products. However, ADB says the economy will start to rebound from fiscal year 2011 when the economy will grow 6.3 per cent, underpinned by the global recovery and strengthened business confidence and investment. But for now, macro-economic indicators concerning Bangladesh are most likely to deteriorate gradually with the decline in remittances and exports.
Meanwhile, the Bangladesh Bank (BB) governor rejected the growth forecasts by the World Bank and the IMF saying the economy is poised to grow around 6.0 per cent this fiscal, despite global meltdown. The central bank is still upbeat about a steady growth, as it sees fewer bumps in the two remaining months of the current fiscal year. But the multilateral donors have stated in their latest reviews that the global economic recession is already having a knock-on effect on Bangladesh's two main economic levers -- exports and remittance -- with its recovery seeming to be unlikely before 2011.
Whatever projection for GDP growth stands for the country, the government would certainly need to take some precautionary measures to stave off any severe adverse fallout from the global meltdown on the Bangladesh economy. A flexible budget for the next fiscal year would be considered a befitting response to the looming economic challenges so that it could decide on priorities later to help offset any possible impacts of the recession. Though Bangladesh is not much integrated into the global financial markets, yet it can hardly escape the fallout from the turmoil thereof, in the real economic sectors of those countries that are the main buyers of its products and also, directly and indirectly, main providers of funds for its development activities.
It is thus expected that the government would take steps to streamline its expenditure to create more jobs to help the poor get out of poverty. One of the development challenges of the government does unquestionably lie in raising public expenditures in the annual development programme (ADP). More funds do need to be channelised efficiently to the market. For that matter, the line ministries should have more institutional capacities to implement ADP and raise public sector infrastructure investment. Rural infrastructures, including rural roads and irrigation facilities, power and basic urban services are some of the areas where the government will have to increase its expenditure.
Social safety net programme could be linked to rural infrastructure and job-creating activities for long-term growth and poverty reduction. Targeting such a programme will be a critical area for action. All concerned expect that the government would extend all-out support to small and medium enterprises (SMEs) for rapid growth and job creation. If ongoing power and gas crises are not addressed immediately, it would hurt domestic production and hold back medium-term growth prospects. For this purpose, public investment in the power sector assumes a critical importance as foreign direct investment in the sector is less likely during the recession. Undertaking further reforms in local governance and enhancing local government capacity should also merit a priority attention in order to ensure efficient use of public resources.
Economists say the economic growth rate could be raised from 6.0-7.0 per cent to 8.0 per cent by raising domestic savings and investment. Instruments to mop up small savings need to be devised and incentive to save should be raised through reforms in financial institutions. What matters most is stability and sustainability of the growth so achieved. Investment in infrastructure such as power, roads and telecommunications will be extremely important to sustain -- and hopefully increase -- the growth rate.
szkhan@dhaka.net