GDP growth stuck in narrow circle | The Daily Star
12:00 AM, May 28, 2012 / LAST MODIFIED: 12:00 AM, May 28, 2012

Eye on Budget

GDP growth stuck in narrow circle


In the last several years, finance ministers tried to take the economy above 7 percent growth, but always missed it.
This time around, Finance Minister AMA Muhith hoped to cross the target. Again, he not only missed it but fell behind the last fiscal year's achievement.
According to the government's provisional estimate, growth would be 6.32 percent this year.
Now the finance minister looks to the next fiscal year to reach the milestone, and has also set a target of 7.2 percent.
However, economists are sceptical about reaching the target due both to global and domestic factors.
Finance ministers usually feel comfortable as a member of a political cabinet when the inflation rate remains low and growth high.
The present finance minister Muhith was also at ease in the first two years in office when inflation was low and growth on the rise.
In the first year of Muhith as a finance minister in fiscal 2009-10, GDP growth was 6.07 percent, while the rate was 6.71 percent in the following year.
The current fiscal year's target was 7 percent.
Economists and businesspeople blamed the government's repeated failure to achieve a 7 percent growth on perennial power and gas crises, poor infrastructures and political instability.
Anwar Hossain, chairman of Anwar Group and the recipient of this year's Business Person of the Year award of The Daily Star and DHL Express, said recently Bangladesh can easily achieve double digits growth if these problems are solved.
After the independence of Bangladesh in 1971, the country achieved an average 3 percent growth a year in the first decade, while the growth was 4 percent in the 1980s. In the third decade, the growth rate was on an average 5 percent per year.
In fiscal 2004, growth crossed 6 percent for the first time but since then the figure could not cross the 7 percent hurdle.
Sadiq Ahmed, vice chairman of Policy Research Institute (PRI), said the most immediate reason why this growth will not be achieved is a huge slowdown in growth of exports, especially garments, because of the European debt crisis.
Mirza Azizul Islam, an adviser to the immediate past caretaker government, said the possibility of attaining a 7 percent GDP growth in the next fiscal year is thin due to the debt crisis in Europe.
“The external environment is not very conducive,” Islam said, adding that recession will continue in Europe in 2012 and the situation will improve slightly the following year.
The US economy is better than that of Europe but growth there will remain slow, he added.
The US and EU are the two major export markets of Bangladesh, and any meltdown in these markets will have an adverse effect on the overall economy of Bangladesh.
On the domestic factors, Islam said the government has been failing to use foreign aid in a satisfactory manner. There will be a shortfall in the government's investment as well. On the other hand, the government has been borrowing heavily from the banking system and will have to do so in the next year to face the pressure of expenditure, said the former adviser.
Islam said a huge borrowing from banks will have a crowding effect on the private sector.
"So it is very much unlikely to raise the next year's growth by 1 percentage point over the current year."
World Bank's senior economist in Bangladesh Zahid Hussain said the GDP growth target for fiscal 2013 is 7.2 percent in the sixth five-year plan of the government. This means growth will have to pick up by nearly a full percentage point relative to fiscal 2012.
“While not unprecedented in Bangladesh's growth history, achieving it will be a challenge in FY13 given the fragilities in the global economy, particularly sustained uncertainty in the Eurozone surrounding the fallout from the likely Greek exit from the Eurozone,” Hussain said.
There are also stubborn power and infrastructure constraints, he added.
He said, higher growth could also come from taking fuller advantage of Bangladesh's favorable demographics if skills levels are increased and new jobs are created, but these take time.
The good news is that activity levels are projected to rebound in Bangladesh's major export markets such as the US, Germany and the UK in 2013, he said.
Hussain said the world trade volume is also projected to rise from 4 percent in 2012 to 5.6 percent in 2013, according to the World Economic Outlook of International Monetary Fund.
“If combined with measures to ease the key internal bottlenecks on economic activities, growth in the next fiscal year can be a lot better than this year.”
Hassan Zaman, senior economic adviser to the Bangladesh Bank governor, said, to achieve the next fiscal year's growth target, “the main contribution the Bangladesh Bank can make to growth is working with the finance ministry to maintain macro stability."
Ensuring adequate liquidity in the foreign exchange market and domestic banking system and facilitating credit flows to growth-enhancing sectors are also important, Zaman said.
He also said, given the downward growth revisions in most countries due to the global crisis, if Bangladesh can achieve anywhere between 6 percent and 7 percent growth, it would be quite an achievement.
“However, what is more important than the precise growth number is how the growth is distributed.”
He said the good news is that over the past two decades there has been an almost halving of poverty because growth has been fairly pro-poor when compared with other countries with similar growth rates.
So the challenge is to maintain this pattern of growth and this is where policies promoting financial inclusion, access to agricultural inputs, labour intensive manufacturing and greater access to education and safety nets are crucial, said Zaman.

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