Unbundling the GDP growth debate in Bangladesh

Despite deeper challenges of economic slowdown due to persistent global pandemic Bangladesh remains an outlier in the growth landscape. An update based on the data provided by the Bangladesh Bureau of Statistics placed at a recent meeting of the ECNEC stated that the GDP growth rate improved significantly at the final count of the fiscal year 2020-21 from the initial estimate. This has sparked a sharp debate among the economists and some of them are having difficulty in 'fathoming' the reasons behind such upturn. A few others, of course, are in alignment with such a robust outcome. I consider this as a healthy debate.
Let me dig a bit deeper to unbundle the factors that may have been pushing the growth optimism in Bangladesh. My own feeling is that Bangladesh has been cashing in on the consumption related factors, both domestic and external. It was very cautious in imposing hard lockdown and allowed the RMG factories to operate normally despite significant disruptions in supply chains leading to higher shipping costs. It continued to build the inventories of finished products to respond to external demand as soon as the consumption spree returned in the west. And the rural economy was mostly open allowing movement of agricultural and other goods and services to keep the domestic market vibrant. The government also provided comprehensive stimulus packages amounting nearly to six per cent of GDP. Although the larger entrepreneurs including the RMG factory owners took greater advantage of this emergency support of the government and the central bank, the CMSMEs including those from the farm sector also improved their access to this special support in the second round as the regulator showed innovation and flexibility in its approach. The collaboration between the banks and MFIs, SME Foundation, PKSF and various development banks under the guidance of the central bank proved crucial in providing low-cost financing support to the small entrepreneurs. However, the entrepreneurs at the lower end of the social pyramid have always been well known for their resilience and they continued to show their strength of survival even during this unprecedented pandemic. The greater flow of the remittances to the rural areas from urban and foreign sources in addition to enhanced mobile and agent banking related financial services plus the robust social protection programmes by the government have made the growth in consumption related factors more vibrant creating favourable ground for enhanced inclusive GDP growth process. In fact, the total consumption increased by eight per cent during the last fiscal year.
Given this comprehensive perspective, I was not so surprised to see the optimistic outcome of the GDP growth rate at the end of the last fiscal year. Whether we like it or not, GDP growth rate remains the most acceptable universal measure of economic prosperity. Of course, the measure has a lot of limitations. This measure certainly falls short of including the aspects of income inequality, waste and environmental pollution, damages done to the ecological infrastructures through over-extraction, the labour by women for domestic chores, the hidden costs of armaments, flight of capital, illegal income etc. It is not surprising to see that many experts are cautious in accepting the GDP growth rate as the single measure of economic well-being of the people. Nobel laureate economists like Joseph Stiglitz and Amartya Sen are, therefore, in favour of complementing other measures like Human Development Indices with the GDP growth rate to make the well-being indicator more inclusive. Fortunately, many new measures like the Social Progress Indicators, SDGs progress reports or Global Hunger Indicators are now available to complement the conventional measure of economic prosperity. Notwithstanding all these limitations, the GDP growth rate stands unique in comparing the global economic prosperity of the nation-states. Bangladesh is no exception.
It may be noted here that Bangladesh was initially projected to grow at 5.43 per cent during the last fiscal year. The COVID situation was still precarious when this projection was made. So, there were uncertainties regarding the pace of economic recovery as business confidence remained subdued. However, things started changing as the government kept on implementing the stimulus packages in right earnest. The global demand of its export products also picked up with increase in vaccination including booster doses. Bangladesh also managed vaccination well. The domestic businesses including RMG factories continued to remain opened following necessary health protocols. The supply chains remained seamless, thanks to the transports remaining on their wheels. And there was hardly any disruption in our agricultural production. The digital marketing facilities continued to flourish encouraged by the e-commerce and digital financing services. The hardworking and inspirational farmers, MSMEs and labourers kept the wheels of the economy moving making best use of the robust demographic and physical connectivity. The sub-regional connectivity, particularly with the Indian counterparts enhanced during the pandemic.
All these had a positive impact on the final count of GDP growth rate as released recently by the Planning Ministry. Hence, the outcome of GDP growth rate jumped to 6.94 per cent which was 1.5 percentage points higher than the initial estimate. The per capita gross GDP stood at 2,591 USD during the last fiscal year. It may be noted here that Bangladesh has been holding number one position in this per capita growth rate in the emerging Asia beating China, India, and Vietnam over the last decade. This latest jump did not surprise many observers at the actual bursts of activities going on in the fields. Many of us were arguing that Bangladesh would recover better than many of its peers as it has been relying on consumption-led growth process. Nearly sixty-six per cent of the growth of Bangladesh originates from the consumption related factors. As a result, the domestic demand also remained vibrant in Bangladesh. In fact, if we could further support the SMEs, the country could easily experience another couple of percentage points of growth in line with the robust growth seen in the pre-covid fiscal year.
Normally, our international development partners remain more cautious about the GDP growth estimates. They must have been perturbed by the final estimate of the growth rate for the fiscal year 2020-21. IMF, WB and ADB were also conservative about our initial estimate which projected Bangladesh's GDP growth rate at 5.43 per cent. Most of them were highly sceptical about this projection. But as time passed, they too changed their minds and revised their estimates. I am hopeful that they will again revise their estimates of the outcome, and these will not be far from the BBS figures. No doubt, the development partners also use scientific methodologies in making their growth estimates. However, they must rely on BBS data as there is no scope for them to collect information from the fields at this scale for obvious reasons. So, they make a lot of assumptions and readjustments of the empirical information received from the BBS. Primarily, they depend on trade flows while making such projections. Unfortunately, our trade data are not always well recorded and there can be a lot of discrepancies. Given these limitations, I am sure the development partners are forced to make many subjective assumptions to come to concrete projections. At the end of the day, most of them come very near to BBS figures and accept their projections.
That Bangladesh's growth story has indeed been exemplary can also be supported by several proxy variables. The variables like more than twenty-six billion Taka transaction of mobile financial services mostly going to the rural areas in addition to the enhanced rural banking services including agent banking services fueled by ever increasing inflow of domestic and foreign remittances, near hundred per cent access to electricity, the thriving growth centres beaming with economic activities till midnight speak volumes about the pace of inclusive growth in Bangladesh. Moreover, digital entrepreneurs are flourishing all over the country including the rural areas that have been flooded with MFS agents, bank branches and sub-branches, union and postal digital centers, retail chain-shops supported by corporates like Liver Brothers, PRAN RFL and ACI etc. These entrepreneurs have been pushing the frontiers of domestic consumption and demand in Bangladesh. Unfortunately, BBS with its limited institutional outreach and lack of technological capability cannot capture fully all these economic activities. If done, the Bangladesh growth rate would probably go up by another couple of percentage points or so.
While BBS will certainly come up with more elaboration of the factors that led to such a GDP growth rate, my own hunch is, as I have already alluded to, the consumption factors leading to robust domestic demand have been at the root of this growth process. And, as argued, agriculture, remittances and export-led manufacturing employing millions of rural women have been pushing this pace of domestic demand. There is, no doubt, some danger of uptick in core inflation due to abundance of money supply in the economy. But we still have a lot of scope to keep this within bounds as the economy is yet to be fully heated. I am sure the monetary policy authority is keeping an eye on this challenge. It must also be remembered that this flow of additional money was necessary to keep the economy moving during the pandemic. What is more interesting is that although income inequality increased even during the pandemic period, consumption inequality remained stable indicating an inclusive growth process in motion.
In addition to consumption, investment, government expenditures, there is also an element of resource balance between export and import in the growth equation. Certainly, the import expenditures outstripped export earnings leading to the perception of negative impact on growth rate. However, it must also be noted that nearly forty per cent of the import expenditures were for capital and intermediate goods in addition to raw materials for export industries. This component of imports went directly towards growth enhancement. According to BBS, the large industrial units grew at 10.61 per cent during the last fiscal year. The MSMEs grew at 13.89 percentage point. This could grow more if the stimulus package directed to this sector could be further accelerated. Yet, the total GDP at the end of the last fiscal year went up to 416 billion USD compared to initial estimate of 411 billion USD. The trade balance however remains under pressure leading to persistent challenge of Balance of Payment. Consequently, Bangladesh Bank had to inject more than three billion USD into the foreign exchange market to stabilise the exchange rate. We must, therefore, continue to restrain luxury imports and add more support to cash incentives for the remitters to improve the trade balance.
The agriculture sector deserves special mention in the growth story. It increased to 3.17 per cent during the last fiscal year compared to 2.37 per cent for the earlier fiscal year. This helped bolster the food consumption, rural employment, and domestic demand despite some reverse flow of urban and foreign migrants to rural areas. So, the modernised and diversified agriculture should continue to get the fiscal support to keep up the growth momentum.
I think this mechanical debate on growth figures is immaterial unless we focus more on the real economy including food security, employment, price-hikes, and poverty reduction. Surprisingly, Bangladesh has been doing quite well on all these counts despite some challenges put up by the pandemic. No doubt, Bangladesh will have to go a long way towards sustainable development including improvement in income inequality and better service delivery. The fossil fuel-based energy management with huge implication for fiscal policy management and inflation ought to be reframed for the greater cause of the many and not a few. It must also be noted here that Bangladesh is aware of the need for energy independence and the strategic move that is desirable towards more renewable energy. Yet, the power sector remains vulnerable in the context of financial management, and we will have to think more strategically how to increase renewables and create more storage options. Our Premier indicated her strategic way forward in this direction of green transition at COP26 in Glasgow while launching the 'Mujib Climate Prosperity Plan.' Her receiving of the SDGs Progress Award from the UN last year also indicates Bangladesh's commitment towards sustainable development. Bangladesh's achievement as number one in Asia in the field of women empowerment also augers well. As such, we must not be over complacent on the higher GDP growth rate alone but also be focused on complementary indicators like HDI and SDGs implementation. So far, Bangladesh has been doing well on all these counts despite some limitations in the areas of transparency and just governance.

Dr. Atiur Rahman is Bangabandhu Chair Professor, Dhaka University and former Governor, Bangladesh Bank