The GDP paradox

Helal Uddin Ahmed | Published: May 22, 2019 21:16:32

Broadly speaking, there are three measures of national income or output in a country. These are: the sum of all incomes, in cash and kind, accruing to factors of production in a given time period; the sum of net outputs produced in various sectors of the economy; and the sum of consumers' expenditure on goods and services, government expenses on goods and services and net expenditure on capital goods. The total of income flows, net outputs and final expenditures will be the same, but the significance of each emanates from the fact that they reflect the total operation of a country's economy at the level of three basic functions - distribution, production and expenditure.

The most comprehensive measure of the total output in an economy is gross national product or GNP. The GNP is the market value of all final goods and services produced by an economy per year. It is simply the sum of personal consumption expenditure (C), government expenditure on goods and services (G), investments (I), and net exports (X-M). Gross Domestic Product or GDP is arrived at by deducting net exports from GNP. The national product equals the domestic product only in case of a completely closed economy, having no economic transactions with the outside world.

Estimation of national income accounts in Bangladesh is one of the core functions of Bangladesh Bureau of Statistics (BBS). Initially, national income accounting was a joint activity of BBS and Planning Commission. Since 1975, BBS has been engaged in calculating national accounts entirely on its own. It started compiling and publishing GDP and other national income accounting aggregates in 1972 by following production and expenditure approaches in line with the concepts and classifications of the 1968 UN System of National Accounts (SNA-1968). The fiscal-year 1972-73 was used as the base year for constant price estimates until 1988-89. The base year was then changed to 1984-85 in 1988-89; 1995-96 in 2000; and lastly 2005-06 in 2013 by adhering to the stipulations of SNA-1993. 2015-16 would be used as the new base-year from July 2020, when the latest system of national accounting (SNA-2008) would be applied. The number of sectors measured would then jump to 21 from the current 15, thereby expanding the scope for GDP. 

Estimates of national income by expenditure components are less elaborate. Here, estimates are made for basic aggregates like private and public consumption, gross fixed capital formation by private and public sectors, savings, exports and imports. Provisional GDP estimation by BBS based on production approach are subject to a number of qualifications, often due to non-availability of needed data. On the other hand, expenditure-based GDP estimations are relatively imprecise in nature because of the weaknesses in database used in the calculations. The estimates are also affected by limitations of the methodologies used in estimating components. Uncertainties in the actual expenditure are also likely to affect the volume of public sector investments. The basis for extrapolating private consumption expenditure and investment is quite fragile. Overall, stock changes are not accounted for owing to data limitations.

In the above backdrop, some criticisms have been levied recently by the country's leading think-tanks regarding the system of GDP measurement in Bangladesh and its credibility. During a recent discussion held at Bangladesh Institute of Development Studies (BIDS), questions were raised about the quality of GDP statistics. GDP growth rate can be judged or evaluated from two perspectives. One is income inequality, which is constantly getting worse in Bangladesh as revealed by latest official data. The other is employment, which has not improved despite claims of high growth rate. A similar analysis was made by the South Asian Network on Economic Modelling (SANEM), which claimed there was lack of consistency between remittances and high growth. The high industrial growth as shown by official GDP also does not match the figures for private investments. Besides, the gradual decline in incremental capital output ratio also raises questions, as Bangladesh ranks very poorly in the global cost of doing business chart. Most importantly, whereas the rate of decline in poverty during 2005-10 was 1.7 per cent, it deteriorated to 1.2 per cent during the high growth period of 2010-16.

The analysis by the Centre for Policy Dialogue (CPD) shows that despite claims of high growth rate, commensurate contributions to GDP by relevant sectors are not being observed. As there have not been sufficient investments against high growth, the labour productivity should have risen. But no technological or innovative transformation has taken place in Bangladesh in recent times that could enhance the productivity radically. The workers' income should also have increased in case of productivity improvement. But even official data show the reverse to be true. CPD says the GDP shown by BBS has not been realistic in recent times and has demanded that BBS should explain how GDP was being calculated.

This controversy surrounding GDP in Bangladesh is nothing new. For example, the growth in agriculture sector was negative and the remittances also decreased in 2015-16, but the growth rate was shown to be 7.11 per cent. The growth rate was again shown to be 7.28 per cent in 2016-17, but the remittances had decreased by over 14 per cent and the export growth rate was marginally above 1.0 per cent. The growth rate was shown to be 7.86 per cent in 2017-18 following initial projection of 7.65 per cent, despite negligible increases in productive capacity, investment and employment.

Even a former secretary of the statistics division claimed last year at a citizens' dialogue that she had seen how development statistics were polished or doctored during her tenure in the civil service. It is sad that we have not yet been able to devise a credible statistical system even after 48 years of our independent statehood. This lack of credibility in our statistical system and methods need to be addressed swiftly. There should be a transparent and all-encompassing dialogue on the subject in addition to streamlining the statistical system, as otherwise the real picture of our socio-economic development cannot be gauged properly.


Dr. Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly. hahmed1960@gmail.com

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