Understanding the GDP growth rate of Bangladesh

LightCastle Analytics Wing
June 8, 2014
Understanding the GDP growth rate of Bangladesh

I have always had a hard time understanding why the GDP Growth rate of Bangladesh had so little volatility over the last decade or so. Not only was it growing at a decent 6% or so but the fluctuation of the growth rate has also been very low. While I strongly believe that 6% growth is not very hard to meet given our favorable demographics, low per capita income, low wages etc., I do feel that the numbers do not adequately show the business cycle fluctuations.
Let us take the case of FY 2013-14. According to our statistical agency, the GDP growth for the present fiscal year ending June 2014 would be 6.2%. This comes as a surprise as the GDP growth rate in the preceding year was 6.0%. The present fiscal year of 2013-14 in contrast faced political problems and low business confidence and consumer confidence, and if one were to make a guess we would have expected it to be below 6.0%.

So we are left with no other option but to cross check with other economic indicators. Let us go through the big three indicators.
Banking sector credit growth
Credit growth in the banking sector has been much lower at around 10-11%, which is much lower than the mid-term average of around 20%. In the first quarter (Jan-March), most banks reported negative credit growth. This clearly indicates that private investment has been relatively weak.
Non-food inflation rate
Another important indicator for understanding the underlying aggregate demand in the economy is inflation (in particular non-food inflation). Here again we see we very weak in month-over-month inflation numbers. The average month-over-month inflation in the last 4 months stood at a paltry 0.13% (annualised 1.6%) resulting in a year-over-year number of only 5.23%. So, as far as inflation is concerned consumer confidence remains quite low.
Imports have, however, fared a bit better. The first 9 months saw a growth of 14% compared to the previous year. However, we must not forget that imports are growing from a low base. That is precisely why our current account surpluses continue, along with growing Foreign Exchange reserves.
Thus it seems to me that the major economic indicators show a growth rate below 6.2%. For proper economic policy-making, the decision makers surely need access to correct data which show the business cycle movements. I for one would surely be interested in looking at how the growth had been calculated.
Originally posted in The Daily Star

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a systemic and data-driven approach to create opportunities for growth and impact. We are an international management consulting firm which creates systemic and data-driven opportunities for growth and impact in emerging markets. By collaborating with development partners and leveraging the power of the private sector, we strive to boost economies, inspire businesses, and change lives at scale.

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