Any time in the year is good enough to essay the state of the economy but the eve of budget appears to be most appropriate. It is a time when income and expenditure for the economy are brought together in a balance sheet and the rate of growth is estimated. It is, therefore, natural that various aspects of our economy have been highlighted in discussions in various forums in the run up to the budget.
As in the past the most contested issue has been the rate of growth of the economy in the form of Gross Domestic Product (GDP). This important macro-economic tool encapsulates and reveals the state of the economy over a period of one year. GDP, in spite of its inadequacies, remains the crucible by which to judge progress or otherwise of the economy. The estimated GDP growth rate for the current fiscal has been the subject of lively discussion taking the form of a debate. Estimate made by various quarters regarding the GDP ranges between 5.8 per cent to 6.5 per cent. According to the Bangladesh Bureau of Statistic (BBS), the country has posted a 6.12 per cent growth in GDP in the current fiscal compared to 6.01 per cent in the previous year. The World Bank has forecast Bangladesh would achieve a 5.4 per cent GDP growth during 2013-14 fiscal year. The Asian Development Bank (ADB) estimated GDP at 5.7 per cent while the International Monetary Fund (IMF) pegged it below 6.0 per cent. Bangladesh government had earlier revised the GDP growth target to 6.5 per cent down from 7.2 per cent. The provisional estimate of 6.1 per cent by BBS is lower than the official target set in the last budget. According to Bangladesh Economic Review (2012-13) the GDP growth rates in fiscal 2011, 2012 and 2013 have been 6.71 per cent, 6.23 per cent and 6.03 per cent respectively. The provisional figure of 6.1 per cent released by BBS indicates decline in the rate of growth of GDP in each year.
As is well known, GDP is the product (function) of investment and therefore, one has to look at the investment record of the economy. According to official data, private investment dropped for the second year in 2013-14 following political disturbance. In fiscal 2013-14 private investment as percentage of GDP stood at 21.33 per cent, down by 0.36 percentage points. Public investment during the same period rose 0.66 percentage points bringing the overall investment-GDP ratio to 28.69 percentage points year-on-year. Apart from the minuscule increase in public investment, the languishing investment in the private sector has slowed down the rate of growth because it has become the engine of growth of the economy during the past two decades. Stagnation of investment-GDP ratio in recent years, notably during 2006-2010, has also contributed to slowing down of GDP growth in recent years. So, the lower than estimated rate of growth of GDP during current fiscal can also be traced to long-term trends started in the recent past. To this has to be added the sluggish nature of public investment and its quality. During current fiscal the public investment through the Annual Development Plan (ADP) has failed to meet the target leading to a buildup of funds. Moreover, most of the investment in the public sector have long gestation period. On both counts, ADP implementation does not normally lead to robust and immediate growth in GDP in a particular year.
The sluggish growth in investment in both private and public sectors has been reflected in the performance of the various sectors of the economy. Agricultural and forestry sector employs about 21 per cent of the labour force. Its contribution to GDP has been around 17 per cent year-on-year. It grew by 2.46 per cent only during 2013-14, according to BBS. In spite of subsidy given on fertiliser it did not benefit the farmers because of the irregularities in the distribution system. It was further aggravated by the unprecendented political turmoil in the run up to the general election in January 2014. The slow growth rate in agriculture during 2013-14 compares unfavourably with that during 2005-2006 when it stood at 4.67 per cent.
The rate of growth in manufacturing sector during 2013-14 has been 8.68 per cent. This sector contributes 29.01 per cent to GDP and therefore, its growth rate has significant impact on overall GDP growth. In manufacturing, major investment comes from private sector. The decline in private investment during the current fiscal has adversely affected the growth in manufacturing sector resulting in lower than its expected contribution to GDP. Like manufacturing, construction sector also suffered setback for the same reason. In addition it was affected by political disturbance during the last quarter of 2013. Its rate of growth has been 8.56 which is lower than last year's.
In spite of political disturbance the service sector, including banking, transport, storage and communication, maintained a reasonable rate of growth at 6.47 per cent. This sector now contributes more than 40 per cent to GDP and therefore the growth rate in the sector acted to compensate for the slow rates of growth in other sectors.
Though electricity, gas and water supply contribute only 1.65 per cent to GDP its rate of growth during the current fiscal has been reasonable posting 7.40 per cent growth. Since this sector provides inputs to other sectors its healthy growth has served to complement their growth. Some investment in the electricity sub-sector, particularly quick rental power plants, has been criticised for excessive cost.
Real estate that has emerged as an important sector of the economy contributing 7.88 per cent to GDP achieved a rate of growth of 4.2 per cent, lower than expected. Political disturbance and sluggish demand are thought to be the reasons behind this slow growth. Â
For the overall performance of the economy governance plays an important role, particularly that part which relates to economic policy making. According to Onnesha, a think tank, short-sightedness in fiscal management and inappropriate contractionary monetary policy have led to stagnation in investment. In its pre-budget publication the think tank has pointed out that the decline in poverty level has decelerated while the number of unemployed has increased. According to it, unemployed increased at an annual rate of 5.29 per cent during 2000-2012 raising the number of unemployed to 2.60 million from 1.70 million in 2000. It has observed that if the trend continues total unemployed may increase to 3.30 million by 2015.
Onnesha has also observed increasing gap between the target and the achievement of revenue collection in the current fiscal. Because of the gap between target and actual collection of revenue the government has experienced a deficit of Taka 79.68 billion (7968 crores) for which it had to resort to bank borrowing. One of the causes of incipient inflation during the current fiscal has been bank borrowing, it has been pointed out.
The state of economy that has unfolded over the period 2013-2014 is not very robust. But neither is it disappointing. In the face of political unrest for a prolonged period, a not-too-friendly global trade regime and decline in foreign aid the economy has maintained growth rate in GDP above 5.5 per cent which is the rock bottom for a country with over 150 million people. If the GDP growth rate slips below this floor the per capita income will suffer a severe blow, a prospect not probable on the basis of the record of performance of the Bangladesh economy. With prudent macro-economic policies the economy can achieve a growth rate of 6.6 per cent and above in GDP during the next fiscal. The current fiscal year is an aberration because of the unprecedented political turmoil. The best is yet to be.
 hasnat.hye5@gmail.com
The state of the economy: Neither robust nor disappointing
Hasnat Abdul Hye | Published: May 28, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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