Growth and income recession in Bangladesh

Muhammad Mahmood | Published: April 07, 2018 20:55:43 | Updated: April 07, 2018 21:18:07

Bangladesh has achieved an annual average growth rate of about  6.0 per cent over last two decades. This is a spectacular performance achieved by the country in the face of enormous odds, both economic and political. Also given the size and depth of poverty, the country's economic success raises hopes for the poor. Poverty has been almost halved since 1990, yet the extent of poverty as a percentage of the population (also in sheer number) remains high. Bangladesh also stands out among least developed countries (LDCs) in terms of life expectancy, child mortality and access to water and sanitation. The literacy rate, including female literacy, has increased substantially over the last three decades so much so that the country has done better than many middle-income countries.

According to the Bangladesh government, the country is expected to achieve growth rate 7.65 per cent this year and per capita income is also expected to stand at US$1752. The sustained growth momentum has resulted in increase in per capita income. As a consequence, Bangladesh has been making steady progress towards achieving the status of a middle-income country. In fact, Bangladesh has already fulfilled the World Bank criteria to transit from least developed to less developed country by March this year and therefore the country could be recommended for formally recognised as such in 2021.

However, the quality of statistical information in Bangladesh has always been questionable especially relating to gross domestic product   (GDP) and human development indices. The main source of statistical information in Bangladesh is the Bangladesh Bureau of Statistics (BBS) and its professional and technical competence has been under a cloud for a long time. Furthermore, the BBS compounds the problem for itself by developing its own definition and criteria for measuring various human development indices, such as the literacy rate which does not conform to the internationally accepted criteria. The message is very clear: the accuracy of the statistical data is of utmost importance to undertake any research and analysis of any aspects of the economy and to plan for the future and on that score there are deficiencies in the published data.

Economic development always brings along with it in some countries, but not in all countries - at least at the initial stage of economic development - many costs. These are clearly visible in the case of Bangladesh as reflected in urban crowding and congestion, serious environmental degradation, poor working conditions and rising income inequality, to mention a few. It also appears that Bangladesh has been experiencing in recent times  rising violence, including sexual violence against women and children, rising crimes, including very high levels of white collar crimes, especially financial crimes, endemic corruption at all levels of government, in particular law enforcement agencies which have resulted in very serious law and order problems. These crimes and corruption  are difficult to be wholly attributed to the development process; they are largely systemic.

Despite Bangladesh achieving impressive economic growth over the last two decades, one could be forgiven for believing that people in the country are not doing well. This is also the message coming from the government trumpeting growth at 7.2 per cent and talking positives of the "trickle down effect''. But the real picture is somewhat different. According to the Household Income and Expenditure Survey (HIES) of 2016, household real disposable income appears to stagnating or some instances even declining while the HIES, 2016  gives a very buoyant picture in its interpretation of the income data just focusing on the nominal values. Using the HIES data,  monthly average household income when adjusted for inflation (using the Consumer Price Index) for the country as a whole between 2005 and 2016 remained almost the same. The rural average household income increased by about Tk200. This increase in income for the rural households can be largely attributed to overseas remittances. But the average urban households experienced a decline in its average monthly income by Tk950. This clearly indicates that nominal wages in the urban areas have failed to keep up with rising costs of living as expressed in the rising prices of consumer goods and utilities.  The figures clearly indicate the financial squeeze facing Bangladeshi households is real. Any reasonable sweep of history will tell us there is no guarantee that even with the country's graduation into a middle-income country, anything will improve in the near future.

This continued weak income growth, or even the decline pose a particular risk to the consumption outlook. The problem can compound further for the indebted households. Increases in consumer goods and utilities prices also put a brake on spending. Overall annual growth in discretionary spending will continue to decelerate sharply while spending on essentials will be under serious stress. If the trend continues there are significant risks surrounding household consumption deteriorating into a more damaging reality for the economy.

The factors contributing to this weak to negative real income growth are largely to be found in the labour market, but not exclusively. Bangladesh has a total employed population of 59.5 million in a country of 167 million. This is not surprising given that the participation rate is now estimated to be 56.5 per cent. This figure averaged at 56.9 per cent between 1990 and 2017. The unemployment rate is estimated to be 4.1 per cent now but 40 per cent are underemployed and many only work a few hours a week. This is also not surprising in an economy where 42.7 per cent are employed in the agriculture sector and 36.9 per cent in the services sector. These two sectors are well known for irregular and variable employment conditions.  A much clearer picture emerges when we look at formal employment accounting for only 13.8 per cent where normal employment and remuneration standards are applied and the remaining 86.2 per cent in the informal sector have no such luxury. About a third of youth in the country are unemployed. More alarming is the graduate unemployment which now stands at 47 per cent, the highest in the South Asian region. In the face of two million people entering the labour market annually, the unemployment situation will continue to worsen. It is to be noted that unemployment and low level of earning capacity are the two sources of poverty.  But at the same time almost a quarter of a million foreign workers are employed in the country, mostly in garments, information and communications technology  (ICT) and other services industries due to the lack of  skills availability locally.

The HIES report also provides us with data indicating rising income inequality between 2010 and 2016 where during the same period the share of household income  of the lowest 5.0 per cent declined from 0.78 per cent to 0.23 percent while the same for the top 5.0 per cent increased from 24.61 per cent to 27.89 per cent. There are sufficient reason to believe that the share of the income of  top 5.0 per cent has been underestimated as sizeable amount of income and wealth of these people are stashed away, therefore have not been taken into account of in the HIES report, 2016.  The current market rates of wage for skilled and unskilled workers are Tk. 9,000 and Tk.4,600 respectively,  but minimum wage for garment workers is Tk. 5,300. But wages in the country significantly differ from what is considered to be a living wage which is estimated to be at Tk. 12,000, indicating that the going market rates and the minimum wage rates are not a living wage, rather fall far short of it.

Economic growth has been considered as sine qua non for increased employment opportunities which, in turn, will contribute to sustained reduction in poverty and improved quality of life. Rising income inequality coupled with stagnant to declining household income along with high levels of youth and graduate unemployment and very widespread underemployment clearly point out that economic growth over the last two to three decades can not be considered as "inclusive growth''.

Muhammad Mahmood is an independent economic and political analyst.

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