GDP Growth: Achievement and Potential | 2018-03-18 | daily-sun.com

GDP Growth: Achievement and Potential

Dr Mohammad Dulal Miah     18th March, 2018 09:43:02 printer

GDP Growth: Achievement and Potential

Bangladesh now frequently appears in various international development discussions for its marvellous achievements in economic and social feats in the recent times despite the country faces mounting challenges from natural environment such as floods, droughts, and tsunami. However, the story was a bit different few decades back.

Henry Kissinger’s ‘bottomless basket’ was not only an exaggeration but also an expression of Western attitude towards most developing economies.

Even international development agencies including World Bank and IMF considered Bangladesh ‘a test case for economic development’ in the 1980s and 1990s. It is now time for these international organisations to assess if Bangladesh has been successful in this test or not.

Obviously, the country has developed itself from its earlier status of underdeveloped to an emerging economy. GDP growth rate averaged 5.15 per cent in the 1990s which increased to 6.97per cent in 2011-2016. Likewise, per capita GDP almost quadrupled in two decades from US$319 in 1995 (current US$) to US$1210 in 2016. The total GDP increased more than six-fold from US$32.6 billion (current US$) in 1990 to US$221.24 billion in 2016. Gross domestic savings increased to 21 per cent of GDP in 2016 from its earlier single digit rate in 1990. The country’s dependence on external debt has declined commensurably. It cost about one and a half per cent of the total GNI to service its debt in 2001 which declined to a half in 2016. A country which was once featured by negative current account balance can count on positive balance about 1.5 per cent of the GDP per year.

Economic growth has accompanied positive changes of some social indicators. Infant mortality rate decreased from 80.8 (per thousand live births) in 1995 to 29.7 in 2015 leading to the rise of life expectancy at birth from 58 years in 1990 to 72 years in 2015. Population growth rate, which has long been considered a national problem, plummeted from 2.47per cent in 1990 to 1.14 per cent in 2016. Taking these positive changes into consideration, the UN Secretary General Ban Ki Moon praised Bangladesh for its remarkable progress towards achieving the millennium development goals (MDGs). Moreover, the country has been recognised as one of the next-eleven (N-11) emerging economies after the BRICs (Brazil, Russia, India, and China). Thanks to the impressive economic progress over the last two decades or so, Bangladesh is preparing to upgrade its economic status from the least developed to developing economy.

Fascinated by the enthusiasms and energy of mass population in Bangladesh and their eventual results, renowned economist and Professor of Columbia University, Jeffrey D. Sachs in his widely acclaimed book, The End of Poverty: How We Can Make It Happen in Our Lifetime, is keen to credit Bangladesh for its achievement. He writes in this book “Bangladesh shows us that even in circumstances that seem the most hopeless there are ways forward if the right strategies are applied, and of the right combination of investment is made”. Sachs however recognises that Bangladesh is in the first rung of development ladder and has a long way to go. This statement has lot of points to ponder if Bangladesh really wants to tap the true potential of the country.

In the last couple of decades Bangladesh has introduced various economic and political reforms prescribed by international development agencies including the World Bank and IMF. State’s role has been squeezed gradually echoing with the mantra ‘take the state out of businesses’ to leave more rooms for the market. Among all these, political transition from the prolonged dictatorial rule to parliamentary democracy in 1991 was considered an important mark in the changing landscape of the socio-political environment of Bangladesh. Achieving moderate growth in the presence of all these growth-friendly socio-economic underpinnings perhaps, does not sufficiently justify the growth potential of the country. Thus, Bangladesh has to address some important economic issues to realise its full potential.

Primary among them is the failure to industrial policy. As of 2016, 65 per cent of the total population lives in the rural area where the crucial means of livelihood is agriculture. In 1972, agriculture contributed about 60 per cent of the total GDP which has been declining over the years. Tertiary or service sector is taking the place of declining agriculture sector whereas contribution from the industrial sector is still very low. In 2016, more than half (56.46 per cent) of the total GDP was contributed by the service sector whereas industrial contribution accounted for only 28.77 per cent. In contrast, a majority of active workforce is employed in the agriculture sector. In 2016, 43 per cent of the employed labour force was absorbed by the agriculture sector, 20 per cent by the industry and 37 per cent by the service sector. Annual value addition per worker in the agriculture is only US$389 whereas the respective figures for industry and services are $1772 and $1389 (base year 2000). Growth rate of the gross value addition by agriculture averaged 2.32 per cent in 1980-1990 which rose to 3.42 per cent during the period 2011-2016. The respective estimates for the industry were 4.79 and 9.5 per cent and for the service sector 3.47 per cent and 6.00 per cent.

The above estimates show that industry is more contributory in terms of productivity and total value addition. However, the country has failed to capitalise on this opportunity. The declining role of agriculture has been filed by tertiary sector meaning that industry has failed to play a dominant role in accelerating the growth. History is rare to show economies which have graduated economically without a strong industrial base.

It is indeed true that the country has earned self-sufficiency in food production because of its arable land and natural ambient, but it is increasingly relying on import for fixed capital goods including machinery, medicines, processed foods, minerals, chemicals, and other high-tech products. In 1990, total export accounted for 5.1 per cent of total GDP which rose to 18.27 per cent in 2010 against the total important of 11.6 per cent in 1990 and 28 per cent in 2010.

There is no scope to deny that Bangladesh is progressing economically. However, it is important to make sure that the growth corresponds to the real potential of the country. Appropriate industrial policy is sine qua non to achieve this objective. This requires streamlining the existing rules and regulations of the country which are performing much below the required standard. For instance, in the category of ‘ease of doing business’ Bangladesh ranked 176th of the 190 countries in 2016 and 7th among the eight South Asian countries (just ahead of Afghanistan). Moreover, Bangladesh scored 3.5 on a scale of 1 (low) to 6 (high) in ‘business regulatory environment’ in 2014. In 2015 and 2016 the score declined to 3.0.

These indicators postulate that the current growth is below the real potential of the country and definitely Bangladesh does not afford, at this juncture of economic development, to fall short of capitalising on the real potential. Structural shift in which the excess labour force of agriculture can be released and employed in the industrial sector is to be mechanised. Only then the current growth can be accelerated to match the country’s true potential.

The writer is currently working as Assistant Professor and Head, Department of Economics and Finance, University of Nizwa, Oman.

 


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