Almost a year ago, in this column, I wrote about the obsession of our policymakers with the growth of Gross Domestic Product (GDP) ("Our incomprehensible obsession with GDP", May 19, 2019). I discussed in brief how GDP is estimated, and its inherent weaknesses which is why this indicator should not be taken so seriously.
Highly acclaimed economists have discarded this measure long ago as an indicator of economic prosperity. Among others, Nobel Laureate and Columbia University Professor Joseph Stiglitz has written time and again that the traditional way of measuring GDP is inaccurate and outdated. In the report "Mis-measuring Our Lives: Why GDP Doesn't Add Up", Stiglitz along with Nobel Laureate Professor Amartya Sen and Professor Jean-Paul Fitoussi talked about people becoming worse off even with higher average GDP.
Unfortunately, the fascination about GDP growth among our policymakers has led to yet another questionable number for the fiscal year 2019-20 (FY2020). Bangladesh Bureau of Statistics (BBS) has recently published the provisional data of the economy for FY2020. This shows the progress of various sectors and the GDP for the past fiscal year. The provisional GDP growth for FY2020 is estimated to be 5.24 percent. During a time when the whole world is facing the ravage of the ongoing Covid-19 and economies around the world have collapsed irrespective of their size and phases of development, Bangladesh's growth number is not only astonishing but also misleading.
Growth during first three quarters
In his budget speech for FY2021 the finance minister announced that the GDP growth would be 5.2 percent in FY2020. This was a reduction from the originally projected 8.2 percent in view of the outbreak of coronavirus in the country. It was also projected that all major indicators would observe significant decline in FY2020 because of the negative impact of the corona pandemic.
Two months later, on August 10 2020, BBS came up with a set of national estimates. Newspaper reports indicate that these were based on data from July 2019 to March 2020. Indeed, the numbers of the budget speech were also based on data of eight to nine months mostly. However, those have changed in BBS estimates now and some of those are even better than the previous FY2019. One of the key parameters of growth is investment as a share of GDP. In the budget speech of FY2021 in June this year, the growth of gross investment was revised downward to 20.8 percent from the originally projected 32.8 percent and private investment was revised to 12.7 percent from the originally projected 24.2 percent. BBS data indicate that investment as a share of GDP has increased from 31.57 percent in FY2019 to 31.75 percent in FY2020. Private investment as a share of GDP has also risen from 23.54 percent in FY2019 to 23.63 percent in FY2020. Indicators related to private investment do not support this number. For example, till April 2020, private sector credit growth was only 8.8 percent. Import growth was negative (-) 8.8 percent and import of capital machineries went down to (-) 33.5 percent in April 2020. So where has this increased investment come from?
One may recall, even before the outbreak of coronavirus in Bangladesh most economic indicators were not doing well. There was large shortfall in revenue mobilisation, the pace of public investment projects was slow, bank borrowing by the government was high to meet up with budget deficit, financial sector's performance was not encouraging, and both export and import growth was slowing down. This, no doubt would have implications for economic growth.
Impact of coronavirus pandemic ignored
Since the outbreak of coronavirus in March 2020, and because of the country-wide shutdown to contain the spread of the virus, the already stressed economic condition in Bangladesh has worsened. As domestic agricultural and industrial productions were interrupted, supply chains disrupted, businesses closed, and employment were lost, impoverishment among people has increased. Moreover, as Bangladesh is not detached from the global economy, it also faced the impact of coronavirus through reduced export, import and FDI. In the budget speech, both export and import were revised downward and projected to be (-) 10 percent in FY2020. Though recently export orders of the readymade garments have increased to some extent, total export declined by (-) 51.2 percent during April to June of FY2020. Import of capital machinery has declined drastically to (-) 33.8 percent as of June 2020.
The corona impact was not reflected also in the case of investment. While private investment has seen insignificant growth and has been hovering around 23 percent of GDP during the last few years, the increase of private investment during a pandemic period is somewhat puzzling. Entrepreneurs and bank officials have expressed concern about the decline in business and investments. As of June 2020, private sector credit growth was only 8.4 percent. Foreign direct investment (FDI) has declined by 42.5 percent in FY2020. Registration of investment projects with Bangladesh Investment Development Authority (BIDA) has declined by 55 percent during April-June 2020. Domestic resource mobilisation has declined by (-) 34.6 in April 2020.
However, the impact of coronavirus on the economy is not reflected in the provisional estimates of GDP. Without considering the performance of the last three months of FY2020, economic indicators and growth numbers are incomplete and don't match reality.
Hence Bangladesh's growth is way above many countries
The World Bank, in June 2020 had revised Bangladesh's growth downward to 1.6 percent for FY2020. On the other hand, in June 2020, the International Monetary Fund (IMF) projected Bangladesh's GDP growth to be 3.8 percent in 2020. The Centre for Policy Dialogue estimated Bangladesh's GDP growth to be 2.5 percent in FY2020.
However, the impact of coronavirus on the economy is not reflected in the provisional estimates of GDP. As opposed to this, global economy has been projected to observe (-) 4.9 percent growth in 2020 by the IMF as of June 2020. For all major economies, IMF's projection is pessimistic. For example, the USA will see (-) 8 percent growth, Japan will observe (-) 5.8 percent growth, India will have (-) 4.5 percent growth, and China will achieve a positive growth of one percent. The World Bank forecasted India's growth to be negative (-) 3.2 percent and China's only one percent in 2020.
Thus, compared to the global and other countries' growth forecasts, Bangladesh will do much better despite the negative impact of coronavirus. A number of reasons are attributable to this. First, Bangladesh has already had a high growth momentum during the last couple of years. Moreover, before and during the corona crisis, the Bangladesh economy has been supported by its strong domestic economy. Agricultural production has been good though its growth was slightly less in FY2020 compared to FY2019. Remittances saw strong increase in FY2020. The country could also make some savings due to low oil prices in the international market.
But work on improving the quality of life is inadequate
Bangladesh's national statistics on economic indicators are problematic on three counts. First, many a times, several indicators are inconsistent with each other. Thus, the authenticity of data is questioned. Second, statistics have become politicised and are used as a political tool. As a result, the independence of the offices entrusted with data collection and reporting has been curtailed over time. Third, too much importance on GDP growth by the policymakers has taken their attention away from the real and urgent issue. That is, it is not GDP growth, but the quality of growth which should be focused on. There is no need to waste our valuable time on a faulty estimate which does not capture the inequality and inclusivity of economic growth. Per capita income of Bangladesh has increased from USD 1,909 in FY2019 to USD 2,064 in FY2020. This does not mean anything for anyone—rich or poor. The rich do not care about any change in this number as their income is a thousand times more than this. The poor also do not care as their income is far below and the average per capita income will never change their lives. What matters is how much is distributed among those who are furthest behind.
So, we need reliable data and better measure of economic advancement. Unfortunately, our GDP growth will not be able to show the extent of negative impacts of the historic coronavirus pandemic on a large section of the population. As a result, policies will also not be adequate to address the sufferings of people and recover from the challenges arising from the ongoing crisis.
Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue.