Gain some, lose some
Timely revisions to data on GDP and its components determine the accuracy of national accounts estimates and their comparability across countries.
Large revisions result from new methodologies that expand coverage of economic activities and compute their size based on updated input-output coefficients. These change the size of both the nominal GDP and the real GDP. In principle, changes in the base year itself only change the size of the real GDP.
Rebasing the national accounts in practice means changing the reference period for the individual price and volume indices used from the old base year (2005-06) to the new base year (2015-16) and aggregating from the detailed compilation at sectoral levels to obtain estimates of production and expenditures at the national level.
Such large revisions are usually recommended once every decade.
So, the current revision of the methodology and the base year to 2015/16 was just due, given that the last revision was done in 2013 and new survey data are available to construct a more disaggregated breakdown of the sectoral accounts.
With the finalisation of the new series, Bangladesh would be ahead of all other Saarc countries in terms of the recency of the national account's base year. Only the Maldives (2014) and India (2011-12) come close. Pakistan (2005-06) and Sri Lanka (2010) are well behind.
Comprehensive revisions of GDP data, as done in the latest revisions, result in upward adjustments.
Improved data sources increase the coverage of economic activities as new weights for growing industries more accurately reflect their contributions to the economy.
Not surprisingly, the size of agriculture, industry and services have all increased, leading to an increase in nominal GDP per capita both in nominal taka and US dollars.
As in the past revisions, methodological changes have caused a significant rise in the level of the nominal GDP.
On average, Bangladesh is richer than the series based on the 2005-06 base year made us believe. GDP per capita measured in current US dollars in FY21 is 14.7 per cent higher in the new series relative to the old series. This bridges materially the gap between the per capita income level at present and the milestones such as upper-middle-income country status by 2031 and higher-income country status by 2041.
This statistical artefact does not mean our earnings on average have spiked up overnight. The standard living of the citizens on the ground before and after the revision is the same. All it means is that the earnings per capita are (hopefully) better measured in the new series.
We will be on more certain grounds on the extent to which GDP is better measured in the new series when the BBS releases the details on how they arrived at these estimates.
Other series that will be affected by the break in GDP series are fiscal, external, and financial development indicators expressed as a percentage of GDP. When nominal GDP is revised upwards, all ratios using nominal GDP in the denominator look smaller than previously reported.
Revenue mobilisation will look weaker, public expenditure thinner, the economy less open, and the extent of monetisation shallower. However, the economy will also look less indebted relative to its size, both internally and externally, as will be the burden of debt servicing relative to the nominal GDP.
You gain some and lose some.
We hope the BBS will come up with similarly updated measurements on other aspects of earnings, such as income distribution by different income size groups, occupation, and location. The BBS is well behind schedule on Household Income and Expenditure Survey and the Labour Force Survey that could provide some inputs in making such assessments.
The new series provides reason to suspect that inequality may be under-estimated. Take the poverty estimate based on HIES 2016-17 survey. This is independent of national accounts statistics.
The new series is saying that per capita income in 2015-16 was 18.5 per cent higher relative to per capita income in the old series. Yet, 24 per cent of the population were below the upper poverty line that year. This necessarily implies higher absolute inequality than previously believed because per capita income was $1,737 in the new series compared with $1,465 in the old series. Hence the difference between the average income of the poor, as measured in HIES 2016-17, and national average income per capita was order of magnitude larger than the old series would make us believe.
The new series also suggests the efficiency of investment was over-estimated in the old series. The story on growth and investment is not very different in terms of trends. They rise and fall similarly in each reported year. However, the growth rates are lower in the new series, where it never crosses 8 per cent.
The investment rates, on the other hand, are higher in every reported year. This means the efficiency of investment, as measured by the ratio of growth to investment rate, known as the Incremental Output Capital Ratio, is lower than implied in the old series.
The author is an economist.