Economy faces 'growth conundrum' as exports, remittances fluctuate

The GDP growth rate and its corresponding data sources in Bangladesh remain largely inconsistent causing a "growth conundrum(Puzzle)," according to a research firm.

The Dhaka-based South Asian Network on Economic Modeling (SANEM) said the country's drivers of economy are export and remittances and both have been fluctuating in recent years, but the growth rate went upward.

The research group said it researchers have been struggling to explain such type of GDP.

"Many people seek explanation from us on the GDP growth, but we as professional economists struggle to explain…," Dr Selim Raihan, executive director at the SANEM said.

He was talking with reporters while launching its quarterly review of Bangladesh Economy held in the city Thursday.

He said policymakers in the country seem to be in the "comfort zone" as the obsession with the GDP growth numbers keeps them from carrying out reforms.

He, however, said there are five "concerns" about such type of growth, which can be termed growth conundrum - puzzle!

He said the pick-up in private consumption does not match with lower exports and remittance growth.

Dr Raihan said the rate of private consumption was 3.0 per cent in fiscal year 2015-16 and it grew over 11 per cent in the last fiscal year (2017-18). But growth rates of remittances and exports were weaker than that of private consumption.

Private consumption usually depends on the remittances and exports.

The SANEM said there is high manufacturing growth despite the fact that there is low export and slow private investment.

The research firm said the high manufacturing growth does not match with the poor business environment.

The doing business and the logistics performance indices have dropped in recent years.

In the ease of doing business index, Bangladesh fell even below Afghanistan to 176 but on the other hand, the manufacturing sector is on the rise.

Also, in the World Bank's logistics performance index, the country's scores were down by 13 points to 100 in 2018.

It said the falling incremental-capital output ratio (ICOR) does not match with poor business environment.

In an efficient economy, the ICOR usually falls, but in countries like Bangladesh it should increase. "The reality is that the ICOR is on the decline in Bangladesh."

Dr Raihan, however, said quality of growth is very much important as it is largely linked with poverty, inequality and employment.

"The poverty has declined in recent years but if we consider the pace of the GDP growth, the poverty rate should have fallen much faster," he said.

He said a survey conducted by SANEM on households shows that the employment in all key sectors dropped, except a fragile growth in the services.

"The employment elasticity of GDP meant for all sectors dropped excepting the services which means that the higher GDP had failed to create jobs," he said.

The SANEM, however, advocated a number of reform measures including tax reforms for high revenue generation.

Suggesting banking sector reforms, it said high non-performing loans, weak regulations and institutional weakness, political patronisation characterise the key financial sector.

"We need trade policy reform for export growth and its diversification," Mr Raihan said.

It said better management of exchange rate, better handling of the mega projects and fast track implementation of the SEZs are needed for quality growth of the economy.

Addressing the function, SANEM chairman Professor Dr Bazlul H Khondker said many ask them about the drivers of the GDP.

"We actually do not know, the national statistical organisation should answer it," Dr Khondker said.

Research director Dr Sayema H Bidhisha also spoke.

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