Economy firing on all cylinders

There are bright sparks in all corners of the economy, according to the provisional GDP figures for fiscal 2021-22, which do not show a hint of a pandemic hangover when others are still plodding along.

The Bangladesh economy will grow at a remarkable 7.25 percent this fiscal year, the third time since fiscal 2006-07 that the GDP growth will cross the 7 percent-mark, according to the computation made by the Bangladesh Bureau of Statistics based on data until March.

Incredulously, that is exactly the GDP growth target laid out in fiscal 2021-22's budget that was announced in June last year -- and surpasses the projections made by multilateral lenders as recently as last month.

The World Bank and the International Monetary Fund said the Bangladesh economy would grow at 6.4 percent this fiscal year and the Asian Development Bank has forecast a 6.9 percent expansion.

"There might be debate about the figure -- it could be 7.3 percent or 7.5 percent or 7.9 percent -- but there is absolutely no doubt that the economy is on an upward trend," said Planning Minister MA Mannan while unveiling the provisional figures after a meeting of the Executive Committee of the National Economic Council.

The growth momentum is down to the industrial sector, which, according to the BBS data, is roaring, led by the manufacturing activities of the large industries, whose output is estimated to grow at 12.87 percent.

And households are lapping up the output, too. Household consumption is estimated to grow at 13.18 percent, the highest in five years.

Exports, which grew at an impressive 35.14 percent in the first 10 months of the fiscal year, are propping up the economy well.

Shamsul Alam, the state minister for planning, went on to cite the country's strong showing in the Nikkei Covid-19 Recovery Index, high vaccination rate and the improved performance in the Global Hunger Index as indicators of the economy's pink health.

"While the economy has not recovered fully from the pandemic, whatever recovery has been taken place is good enough."

The final growth figure might be higher, according to Alam, as the provisional estimate did not factor in the shopping frenzy in April centring Eid-ul-Fitr, the country's biggest festival in Bangladesh, which was observed on May 3.

Asked about the Russia-Ukraine war that has cast a pall of gloom on the global economic recovery from the pandemic trough, he said: "Admittedly, our recovery has been hampered but we are exercising good judgement."

Economists remain sceptical about the rosy picture presented.

"I demand full disclosure of data and methods of estimating the GDP growth rate for fiscal 2021-22 -- these suspiciously high GDP growth estimates are not supported by the correlates and other proxy indicators," said Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue.

The correlates include poor implementation of the annual development programme, weak offtake of private sector credit, sluggish import of capital goods and raw materials, tepid growth of energy use and so on, he added.

The fact the provisional growth figure is an exact match for the government's growth target is bound to raise eyebrows, said Zahid Hussain, a former lead economist of the WB's Dhaka office.

"If we are so good at forecasting GDP growth, how come all other targets such as revenue, expenditure and the composition of deficit financing consistently elude us and are always on the downside in case of revenue and expenditure?"

He also remains sceptical about the back-to-back double-digit growth witnessed by the industrial sector and the manufacturing sub-sectors.

"Such an impressively sustained recovery in industrial growth is at odds with the growth in electricity and gas use. Industrial growth and energy growth are supposed to be positively correlated. That is not the case here. One can't help but wonder why."

Real value-added growth in electricity declined from 11.65 percent in fiscal 2020-21 to 7.24 percent in fiscal 2021-22 and the same in gas declined respectively from 1.45 percent to 0.52 percent.

"On the demand side, there apparently was a boom in household consumption expenditures. Where has this come from? Remittance growth has been negative and agricultural growth has declined. Services grew by only 6.3 percent. Yes, garment exports have boomed, but the owners claim their profits have mostly been eaten away by increased prices of intermediate inputs."

Nominal wage growth in the production sectors for low skilled labour was 8.6 percent through March, which in real terms was less than 3 percent.

"I am not sure pent-up demand financed by drawing down financial savings accumulated in the past can fully explain such a consumption boom."

Last but not the least, private investment rate has increased from 23.7 percent of GDP in fiscal 2020-21 to 24.6 percent of GDP in fiscal 2022-23. This is still less than the 25.3 percent of GDP in fiscal 2018-19, the year before the pandemic. 

"Yet, growth has returned to the 7.3 percent pre-pandemic three-year average," Hussain added.