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The debate over GDP growth target

  • Published at 01:50 am January 18th, 2018
  • Last updated at 01:51 am January 18th, 2018
The debate over GDP growth target
Despite the government setting 7.4% as the Gross Domestic Product (GDP) growth rate for the fiscal 2017-18, many international organizations, including the World Bank, come up with different ideas regarding the target. The WB has forecast that Bangladesh will post only 6.4% GDP growth over the period, which is one percentage point less than the target set by the government. The WB forecast came in a report styled “Global Economic Prospects in South Asia” published on January 9. Meanwhile, the Asian Development Bank (ADB) says the GDP growth will be up to 6.9, with International Monetary Fund (IMF) predicting a 7.1% growth. Though the masses are not concerned over the issue, economists find it important as it is linked with the employment opportunities of the country. According to them, a healthy growth in the GDP pushes up the volume of investment, production, earning and trade. When contacted, AB Mirza Azizul Islam, a former adviser to the caretaker government, said Bangladesh’s GDP growth will hover around the rate set by the WB. “The GDP growth will not cross the 7% mark because the agriculture sector suffered great losses due to repeated floods, causing import to increase,” he said. Rise in imports squeezes the GDP growth. Moreover, this is the year of national election, he pointed out. “The export growth so far is not good at all. But, it is the time to see if the ongoing growth continues. However, the remittance inflow is much better now,” he said, adding, the smooth and regular contribution of the Bangladeshi expatriates to the national economy is a matter to observe in the coming days. He also warned of various problems expatriates are facing in Saudi Arabia, which is the largest source of remittance for Bangladesh. The GDP growth, he expected, will be 6.6% in the current fiscal year. Dr Nazneen Ahmed, senior research fellow of Bangladesh Institute of Development Studies (BIDS), also does not see the GDP growth nearing the 7.4% target. The floods throughout 2017 were the worst in the last few years, causing havoc to agriculture. When the government placed the budget for the 2017 18 fiscal year, it did not consider the losses caused by floods, she said. The BIDS researcher said 2018 being the year of general polls has some other challenges ahead. “Crop production was badly affected due to the floods, causing the inflation rates to rise. Especially, expenditure by the poor is spiraling, with their savings plummeting. The import costs are spiralling,” she said. But, the exact GDP growth will only be confirmed when the fiscal year ends, she concluded. Meanwhile, Professor Mustafizur Rahman, distinguished fellow at Centre for Policy Dialogue (CPD), thinks the advanced floods in the Haor areas under Sylhet Division, followed by repeated flooding in the northern region of the country, will impact the GDP growth. “The WB first forecast a lower GDP growth last year. But it finally changed its stance by increasing the figure. It will not be wiser now to predict GDP growth of the ongoing financial year just based on the data collected from its first five months,” he said. On the other hand, former Bangladesh Bank governor Mohammed Farashuddin is not taking the WB forecast seriously. “The WB always forecasts low growth of GDP. I do not feel that the forecast (for current fiscal) is correct as it changes its assumption (regarding GDP growth). For the last few years, they have been backtracking from their previous position. But, they finally accept the government statement on the GDP growth achieved at the end of a fiscal year,” the seasoned banker observed.\ [caption id="attachment_240939" align="aligncenter" width="900"] From left, AB Mirza Azizul Islam, a former adviser to the caretaker government, former Bangladesh Bank governor Mohammed Farashuddin and Professor Mustafizur Rahman, distinguished fellow at Centre for Policy Dialogue (CPD)[/caption] During the 2016-17 fiscal year, the WB first forecast 6.3% growth, while it changed the figure to 6.3% and ended up placing the target of 6.8% growth. “This is why the forecast of the WB does not really matter,” he added. “We may have to take into account the losses incurred after the floods; no matter what the WB forecast says. After flooding, a massive siltation takes place, bolstering the production of crops. So, we have nothing to be concerned or panicked about,” the ex-BB chief stated. Taking about the GDP growth issue, Dhaka-based South Asian Network on Economic Modelling (Sanem) Executive Director Dr Selim Raihan said: “According to its own estimate, the WB has forecast lower GDP growth, possibly by considering the agriculture sector suffering the losses resulted from floods, which also intensified the import of foods.” Secondly, continuation of export growth for the rest of the current fiscal year is also a matter to keep an eye on because it has been seeing a downward trend in the international market. Remittance inflow is another indicator that needs to be observed closely, he furthers said. The economist, too, expressed his fear that the GDP growth might fall ahead of the 11th parliamentary polls tentatively scheduled to take place between December 2018 and January 2019. Before any election, the overall investment slows down, he stated. “The WB takes into cognizance the government estimate on GDP growth in the end, regardless of what it forecast previously,” he added. It is worth mentioning that an earlier forecast of the WB said Bangladesh will register a 6.5% GDP growth in the current fiscal year. Dr Atiur Rahman, another former governor of the central bank, said the WB or other international organisations always forecast less GDP growth compared to the government’s prediction. They do it on their own. After the end of a fiscal year, they show the correct GDP growth.” “…So, there is nothing to be worried about. No such incident happened in the country that the GDP growth will dip by one percentage point,” he said. In the December 9 report, the WB said the both remittance inflow and investment will shrink, but personal consumptions will go up in the fiscal 2017-18, leading to its GDP growth to fall. An estimate of the Bangladesh Bureau of Statistics (BBS) reads that in the last fiscal year, the country achieved a record 7.28% GDP growth, the highest in the country’s history. But, the government had set the GDP growth target at 7.2% in 2016-17 fiscal year when the total GDP volume was of $24,986 dollars or Tk20,87,580 crore. The BBS officials said the country’s GDP growth never crossed the 7% feat for nearly a decade until the fiscal 2015-16 when the GDP growth stood at 7.11%. Meantime, the ADB in its report titled “Development Outlook Update 2017” mentioned that the growth rate will be a little sluggish owing to several limitations. The article was first published on Bangla Tribune