The Financial Express

The dynamics of growth projections

| Updated: October 25, 2017 05:26:21

The dynamics of growth projections

Two leading multilateral lending agencies have released their projections on the growth rate of Bangladesh economy for the ongoing fiscal year (FY18). Their projections were released at the end of last month as part of their observations on the global economic trend. Both the multilateral agencies have projected that the country's growth rate would be below 7.0 per cent. The World Bank has projected 6.4 per cent growth of the country's Gross Domestic Product (GDP) in the ongoing fiscal year, while Asian Development Bank (ADB) has projected 6.8 per cent growth. The government of Bangladesh has, however, set a target of 7.4 per cent growth in the current fiscal year.

Projecting the growth is a regular exercise of these agencies. The projection is generally based on available data on the national and global economic indicators, historical trends, circumstantial evidences and observation of the ongoing developments. The main objective of the projection is to understand the short-term and long-term prospects of the economy. It also helps to diagnosis the weakness of the economy.

But the GDP itself is a controversial indicator to measure the progress of the economy and development. No matter how widely it is used, its limitations are now well recognised. That's why, eminent economists across the world are calling for better alternative indicators to gauge the real advancement of the economy. They have been suggesting to weigh and measure the economic performance by job situation, well-being of the people and health and nutrition conditions. 

Nevertheless, GDP is still considered the most critical indicator of the economy and so its growth rate becomes the single-most important measure of economic progress. Developing countries like Bangladesh find healthy growth rate handy to claim success in their development goals.

Necessity of growth is undeniable but obsession with GDP growth makes the policymakers less concerned about the quality aspects of growth. That's why, they concentrate more on figures of growth presuming that it would always shoot upward. The Sixth and Seventh Five-Year Plan documents clearly reflected this. The title of the 7FYP document is 'Accelerating Growth, Empowering Citizens' which also projects to attain 8.0 per cent GDP growth by FY20 from 7.0 per cent growth in FY16 (The simple estimation is that each year, GDP growth rate would increase by 0.2 percentage points). Official estimation claimsthat real GDP growth rate has crossed the target in the past two fiscal years. According to the Bangladesh Bureau of Statistics (BBS), country's GDP posted 7.11 per cent growth in FY16  against the 7FYP target of 7.0 per cent and 7.24 per cent in FY17.

While the target for the current fiscal year's growth rate is set at 7.4 per cent, the lower projections of the international agencies have drawn attention as usual. The Finance Minister has already expressed his disappointment over such projections and also questioned the validity of such projections. He mentioned that similar projections were also made earlier which never came true.

Interestingly, the projections come even before the completion of the first quarter of the current fiscal year. Moreover, no update of the major economic indicators is available. At this moment, only July-September data on remittance and export earnings, and July-August data of import, along with the balance of payments estimation are available. The BBS also has not disclosed the updated monthly inflation data since August this year. Similarly, no data is there on domestic revenue collection for the first quarter. Moreover, there is no monthly, quarterly or even half-yearly data on domestic investment and industrial production. Domestic credit and import are considered to represent the investment trend as well as production.

With such lack of updated data on the economy, doing any projection is quite difficult. Besides, growth projections take into account global developments. In near future, a good number of things may change both at global as well as domestic levels.  Early projections are obviously subject to big revisions. So, there is little to worry about the projection on lower growth rate. Instead, it will be more prudent to analyse the assumptions and reasons identified by international agencies for lower growth projections.  Going into the details will help look at the trend of the economy through a wider and critical lens. By doing this, some pitfalls of the economy may also be detected.

There is, unfortunately, a lack of enthusiasm at the policy-making level for allowing space for such critical analysis. They apparently dismiss such critical analysis as being mainly targeted to discredit the ongoing progress of the economy.

In this context, the latest growth debate in India is quite instructive. The quarterly growth rate of India has gradually come down from 7.9 per cent in April-June period of 2016 to 5.7 per cent in April-June period of 2017. This has raised a lot of questions on the effectiveness of the Indian Prime Minister Narendara Modi's series of reform initiatives, especially demonetisation and Goods and Services  Tax (GST).  While the debate is escalating, Reserve Bank of India (RBI) last week reduced its full-year forecast for Indian growth rate from 7.3 per cent to 6.7 per cent which is even lower than the ADB's forecast of 7.0 per cent. The RBI projection has sparked further debate. Being one of the most important national agencies, RBI's lower growth projection is obviously embarrassing for the Indian government. 

Nevertheless, growth debate in India is helping to critically analyse the different upsides and downsides of the economy. Similar kind of debate on the basis of growth projections in Bangladesh will not derail the wheel of the country's development.     

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