Where did the benefits of economic growth disappear? Who saves?

M. A. Taslim | Published: December 05, 2017 21:21:06 | Updated: December 06, 2017 20:34:51

There is some disquiet among economists about the quality of data provided by Bangladesh Bureau of Statistics (BBS). No less a person than the Economic Adviser to the Prime Minister has expressed his dissatisfaction about the qualifications of the BBS staff and the quality of their work. These are very long-standing problems, and yet very little have been done to improve the quality of the services provided by BBS. The government is perhaps more worried about the embarrassment an efficient BBS can do to its image than the harm an inefficient BBS can inflict on policy making and on the economy.

The current disquiet originates largely from the fact that macroeconomic data, such as economic growth rate, are frequently not consistent with other data, such as credit, export and import, etc., with which they are supposed to be correlated. Significantly the latter are not provided by BBS, but by other government organisations such as Bangladesh Bank (BB), National Board of Revenue (NBR) and Export Promotion Bureau (EPB). They provide not only high-frequency data on a monthly basis with a short lag, but these data are also believed to be more reliable. Reassuringly, most of these data are amenable to cross-checking. For example, bank credit data provided by Bangladesh Bank can be cross-checked against credit data of all individual banks. Any large unexplained discrepancy will be quickly discovered and corrected.

Forecasts of economic growth are made by local and foreign experts on the basis of available information on a host of variables including international trends and current data on domestic production and expenditure as well as high-frequency data mentioned above. Curiously these forecasts have been always significantly lower than the final BBS estimates during the last several years. This pattern of non-random errors in the forecasts has led to the suspicion of inaccuracies, or worse, wilful manipulations of the national accounts data. In the absence of a robust explanation why these experts could be mistaken, the suspicion has grown to almost a conviction. This is an unnecessary and avoidable situation that adversely affects the quality of analyses and policymaking.

It has escaped notice that the national accounts estimates are also not consistent with some micro-level data that provide a very good insight into the economic well-being of the ordinary people of the country.  The BBS does an extensive and thorough survey of income and expenditure of households about every five years. The final report of the Household Income and Expenditure Survey done in 2016 (HIES2016) was released recently. It provides micro-level data on numerous household attributes such as size, education, health, income and expenditure, etc. Since the household sector comprises the entire population these data are more relevant to the living standards of the ordinary people of the country than the national accounts data which provide aggregate measures on a few variables only. HIES are a rich source of both time series and cross-section data that can be used to seek answers to a variety of research questions.

Household income and consumption as estimated by HIES2016 are given below in Table 1. The nominal income and consumption both increased by about two-fifths since the last HIES was done in 2010. These were highlighted when the survey results were released. However, there is no definable relationship between household nominal income and its purchasing power. The latter is captured by real income. Similarly the actual volume of consumption is expressed by real consumption. Real income and consumption are derived by deflating the nominal amounts by the consumer price index (CPI). Economic growth of a country is represented by the growth of real income or output. The estimated real values of household income and consumption are shown in column 5 and 6. It is immediately apparent that the real magnitudes suggest a very different pattern of change than that by the nominal amounts; the household real income has actually declined by 11 per cent between 2010 and 2016. Real consumption also declined by about the same proportion during these years.

But according to BBS national accounts statistics, the real national income of the country has risen by more than 42 per cent between 2009-10 and 2015-16 while the real per capita income has risen by 31 per cent.  In other words, at the national level each individual member of the total population, on average, has contributed to 31 per cent increase in real income during these six years. This increase in income was accompanied by a similar increase in real consumption per capita.

In stark contrast, according to HIES2016, each person at the household level actually received an income (household income divided by household size) that was 2.0 per cent less than what they had received in 2010 and the real spending for consumption of each decreased by about 1.0 per cent. The changes in per capita income and consumption that can be gleaned from the national accounts data are thus opposite to the information provided by HIES16. The differences between the HIES and the national accounts data are rather too large to be ignored as statistical errors or due to different methods of calculation. Note that there was no large discrepancy for the period 2005 to 2010. The HIES2016 data clearly indicates that the household sector comprising the entire population have missed out entirely on the growth dividend of the period 2010 to 2016 that should have normally accrued to them. The share of government revenue in national income also did not increase during this period. Where then did the benefits of economic growth disappear? The Planning Ministry (which oversees BBS) owes an explanation to the nation about the sources of this anomalous finding.

The reduction in per capita real income is given some support by the nutrition data of HIES2016. Globally there is a strong correlation between income and calorie consumption. People in the richer countries consume more calories than those in the poorer countries. The data of earlier HIES also suggest that richer people of the country consume more calories than the poorer people.  An alarming finding of HIES2016 is that the average calorie intake per person has declined by 5.0 per cent from 2318 Kcal in 2010 to 2210 Kcal in 2016 alongside a reduction in real income.  A joint Food and Agriculture Organisation (FAO) and World Health Organisation (WHO) study mentioned that the average calorie intake should be 2430 Kcal (Country Nutrition Paper 2014). The daily intake of calorie in 2010 was already 5.0 per cent below the recommended, but the further reduction to 9.0 per cent in 2016 raises the real prospect of stunting and wasting of children as well as a generally poor health of the population. This does not augur well for the country: its population does not appear to be in a fit state to fully utilise the opportunity for demographic dividend.

The findings above are consistent with the worsening Gini coefficient as reported by HIES2016. The income distribution has moved against the poor very markedly. For example, the poorest one-fifth of the household population received 2.78 per cent of the total income in 2010, but by 2016 their share declined to a measly 1.24 per cent. On the other hand, the top 5.0 per cent increased their share from 24.6 per cent to 27.9 per cent during the same period. Enriching the richest at the expense of the hapless poorest has apparently gained momentum during the last six years. This has reversed the trend of the previous five-year period. The Gini coefficient had declined from 0.467 in 2005 to 0.458 in 2010 heralding the prospect of a progress toward a more egalitarian society. But the budding hope has been nipped with the Gini coefficient shooting up considerably to attain its highest-ever level of 0.483 in 2016. It is surprising that with real per capita income at the household level not rising at all between 2010 and 2016 and Gini coefficient worsening, the head count poverty rate declined so markedly from 31.5 to 24.3 per cent.

The national accounts data of BBS paint a glowing picture of Bangladesh as a stable high performing dynamic economy. But the HIES2016 findings suggest a stagnant lacklustre economy where the household sector (comprising the entire population) have completely missed out on the benefits of the high economic growth with both their average income and consumption falling. These contradictory findings from the data of two of the most widely used BBS sources are likely to deepen the suspicion regarding BBS data quality and further erode its credibility unless some satisfactory explanations are proffered.

The writer is a Professor of Economics at the University of Dhaka.


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