The puzzling GDP figure

The Asian Development Bank (ADB) has revised down its GDP (Gross Domestic Product)  growth forecast for Bangladesh to 6.1 per cent for the current 2014-15 fiscal year due to political unrest from January to March. Political unrest undermined brighter growth prospects by affecting private investment and exports, according to the Bangladesh Quarterly Economic Update released by the ADB. In December last year, the growth forecast was 6.4 per cent. Prior to onset of political unrest, the economy was growing briskly indicating higher growth prospect for the current year.
Strong remittance inflows boosted consumption. Private investment was also picking up, reflecting higher import of capital machinery. Although export remained subdued, it gradually improved as export orders began to rise. Although the country is resilient to domestic and external shocks, GDP growth will be further affected if political unrest continued, warned the ADB.
The World Bank also downsized its growth forecast for Bangladesh to 5.6 per cent from the previous projection of 6.2 per cent because of political turmoil. Agriculture growth in the current fiscal year will be lower due to production loss of perishable products caused by problems in supply distribution and marketing. Industrial sector growth would also be lower. Exports, small-scale manufacturing and construction activities suffered due to political turmoil.
The ADB said that the service sector would moderate at 5.7 per cent compared to 5.8 per cent in the previous year. If the political situation becomes stable, consumer and investor confidence is likely to improve, thereby aiding growth momentum. The ADB also said Bangladesh has to maintain political stability and improve the quality of overall performance to boost investment. The capacity of banking to finance large projects and to provide enough trade finance is limited in Bangladesh.
Banking system needs to be assisted by competition, efficient management, high credit standards and enhanced supervision, particularly in state-owned banks. Average inflation will moderate at 6.5 per cent by end of June. Lower food and oil prices will be a contributing factor. Increase in gas and electricity prices may put pressure on prices in the coming months.
According to the Centre for Policy Dialogue (CPD), political unrest from January to mid-March of the current year caused a gross domestic product (GDP) loss of 0.55 per cent or Tk 49 billion. It is a conservative estimate as it has analysed only 11 major sectors and did not include all sources of loss. The CPD has recommended incentives for the affected sectors in the upcoming budget.
Provisional data released by the Planning Ministry showed that the economy was growing at the rate of 6.51 per cent this year. The government's GDP figure is much higher than what analysts and development partners estimate, as shown above. The prime minister herself said the country had incurred a loss of over Tk 12 trillion (Tk 1.2 lakh crore) in the first 52 days of unrest. It seems from the government data that this massive economic loss could not bring down the country's GDP growth.
According to the Standard and Poor's, the global rating agency, the confrontational politics pursued by major contending parties is by far one of the greatest threats to smooth functioning of the economy. The issue of non-performing loans remains a cause for concern. The stable outlook cited by the S&P is a cause for comfort.
Strength of the economy is important for accelerating economic growth. But there are many weaknesses in the economy which are holding back progress. One such example is public-private partnership (PPP) projects are not showing any progress. Private sector is not attracted to  projects for lack of initiative by the government. The government could not pass the PPP law in six years. Private sector is interested in quick profit. The allocation for PPP in the budget remains unutilised.
Many projects like airports, roads, hospitals, railways and bridges need to be built. The government alone can not undertake all the projects. Every year the budget contains remarks of the finance minister about PPP projects. The PPP secretariat has disclosed that an agreement has been signed for Dhaka elevated expressway. Many countries have been successful in implementing PPP projects. But Bangladesh has not been able to enact a law in this regard. This law could safeguard the interest of the private sector. A parliamentary committee is planning a foreign travel to see PPP projects in other countries.
Share market reflects the health of the economy. The market is not performing well. This means that the confidence of the investors in market has not returned in 4/5 years. Those who have lost money can not recreate capital for investment. There are tricks in the market. The Securities and Exchange Commission (SEC) is not taking effective steps to regulate the market. New companies which are coming in the market have many shortcomings. They submit fake statements. Their share prices rise initially but decline shortly thereafter. Time has come for field inspection before approval of IPO (initial public offering).
The writer is an economist and columnist.
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