Estimate raises eyebrows
Centre for Policy Dialogue yesterday questioned the provisional gross domestic product (GDP) growth estimate, which could misguide the policy makers, affect the credibility of the government and make people dub it as a political score.
Analysing the level of investment, the independent think-tank said the economy is likely to grow by 6.2-6.3 percent, not 6.7 percent as estimated by the Bureau of Bangladesh Statistics (BBS) for the outgoing fiscal year.
The World Bank and the Asian Development Bank have projected 6.2 percent and 6.3 percent growth rate, much lower than the government estimate.
Rising macroeconomic risk, political instability and global risk also likely to put pressure on realising the forecast growth, said the CPD.
“Stagnating gross investment level producing a spectacular 6.7 percent GDP growth may prompt us to term the phenomenon as investment-less growth,” the CPD said in its report on the state of the Bangladesh economy at its office.
Bangladesh's gross investment rate remains stagnant at less than 25 percent for the past several years. Two to four percent more investment is required to raise the GDP growth by one percent.
The CPD found higher GDP projection was made by showing an improved Incremental Capital Output Ratio, known as ICOR, which is used mainly in determining a country's level of production efficiency. The ICOR is a tool that assesses the marginal amount of investment-capital required for an entity or a country to generate the next unit of production.
“Weak estimates may provide very different signals to the policy makers, resulting in inappropriate policy advice,” said Debapriya Bhattacharya, distinguished fellow of the CPD.
Debapriya said no transparent system was followed in the GDP calculation, which was evident in the previous year's growth rate.
He said the government initially estimated GDP growth rate for fiscal 2009-10 at 5.5 percent, which was later revised to six percent after agriculture minister's reservation on the relatively slower growth rate. Later, the GDP was revised to 5.8 percent and finally at 6.1 percent.
“We are unclear how the GDP growth rate is assessed and revised frequently. It creates confusion,” he said.
The think-tank suggested a way for the government to make the policy makers and people understand it clearly.
It advised the government to set up an independent expert group to scrutinise the provisional estimates of GDP (6.7 percent) as provided for fiscal year 2010-11.
The CPD report found major macroeconomic indicators, including fiscal, monetary and external sectors, under pressure since the second half of the outgoing fiscal year.
Inflation, interest rate and exchange rate are in tremendous pressure and it will intensify in the coming year, it said. Rising need for subsidies and declining remittance growth are also posing a threat, said the CPD.
“We did not see such pressure on the economy in the past five-seven years,” said Debapriya. “Monetary policy tools applied by the central bank did not work to rein in inflation.”
On the liquidity crisis, it said diversion of credit to capital markets and growing government borrowing has deepened the crisis further.
After 10 years, overall balance of payments might end up being in the negative territory, said the CPD, adding that it could not be addressed only by increasing exports. “Policy support is vital to propel remittance and foreign direct investment in short-term,” it observed.
Capital market, which is currently at a “dysfunctional” state cannot be made effective by just removing and recruiting some faces, said the CPD. “Corrective, painful and unpopular overhauling measures are needed,” it said.
On energy and power sector, the CPD asked the government to speed up production and supply by rental plants and gas exploration, to give the economy a boost.
Though the CPD hailed the NBR for surpassing the revenue target, it witnessed a lacklustre performance in non-NBR tax collection.
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