How fares the Bangladesh economy? Rizwanul Islam In March 2011, Bangladesh is going to celebrate the fortieth anniversary of its independence. It may be a good occasion to take stock of how the economy is doing at this occasion. While the health of the economy is important from the point of view of the living conditions of the people that comprise the nation, it is important to look at it due to another reason. It may be reca lle d that alongsi de poli tic al and cult ural subj ugat ion of Bang lade sh (the then East Pakistan) by the western wing of the country of which it was part at that time, growing economic disparity between the two provinces provided a powerful motivation behind the movemen t for independe nce. When Pakistan was created , Bangladesh not only started as the poorer of the two provinces but was also deprived of the means for narrowing the gap. Aftergaining independence, the country became a full member of the community of nations and was able to pursue its policies independently. Hence it may not be unreasonable to look at how the Bangladesh economy has been doing not only in absolute terms but also in relation to that of others, especially of its neighbours in South Asia. This is especially so because when the country gained independence, suspicion was expressed in various quarters about its economic viability, and it was even dubbed as an international basket case. It is against this backdrop that the present article looks at the country 's performanc e on the economic front in a comparative South Asian perspective. I should like to mention at the outset that a vast and complex topic like this cannot be treated adequately in the space of an article of the present kind and would like to suggest further work in the area. 2. Economic growth In terms of growth of Gross Domestic Product (GDP _ which represents the sum total of all goods and services produced within a country during a given period), Bangladesh economy did not have much to boast about during the 1970s and the 1980s, but achieved acceleration in growth during the 1990s and the 2000s. While the annual average growth during the 1980s was less than 4 per cent, it exceeded 4 per cent in the early 1990s and crossed the 5 percent mark during the second half of that decade. Since 2004, annual rate of GDP growth has been over 6 per cent. But that trend got reversed in 2008-09 and 2009-10 _ first due to a series ofnatural calamities and then due to the adverse effects of the global economic crisis of 2008- 09. However, the potential of the economy of Bangladesh to achieve GDP growth of over 7 per cent is widely recognized. IBA-BBA-BS-2011-Economy and Development Page 1
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affected the country for some time. However, Sri Lanka's economy has been able to do well
despite the armed conflict that continued. Pakistan's economy also emerged from the period
of low growth and was able to achieve healthy growth. While GDP growth of Bangladesh
during 2000-08 was marginally higher than that of Pakistan and Sri Lanka, it was
substantially less than that achieved by India. Thus, it is not surprising that the gap in per
capita income between these two countries widened.
Acceleration in economic
growth in Bangladesh was
possible due to acceleration in
the rate of investment as well
as domestic savings. During
the entire decades of the 1970s and 1980s, domestic savings and investment stagnated at low
levels. During 1995-96 to 2009, domestic savings increased from 14.9 per cent of GDP to
20.1 per cent. Investment rate (as percentage of GDP) increased from nearly 20 per cent to 24
per cent. Despite this increase, investment rate remains lower than in other South Asian
countries except Pakistan. In 2009, India's investment rate was 35 per cent while that of
Nepal and Sri Lanka was 30 and 25 per cent respectively. Pakistan's investment rate in 2009
was only 19 per cent _ much lower than in other South Asian countries.
Bangladesh has also made notable achievements in other macroeconomic aspects like
keeping inflation under control, budgetary deficits to acceptable levels, ratio of external debt
to GDP at low levels, and raising foreign exchange reserves to a healthy level. As for the
latter, it may be noted that only in recent years has the level exceeded the requirement for
three months' import bill (which is generally regarded as the minimum required). In 2009-10,
the level of reserves rose to over six months' import bill. While this is better than Pakistan's
(5.2 months in 2009-10) and Nepal's (3.7 months in 2007-08), it is much lower than India's
(11 months in 2009-10).
How was the
economy of
Bangladesh
affected by the
global
economic crisis of 2008-09 compared to other countries of South Asia? In terms of GDPgrowth, Bangladesh appears to have been affected much less than India, Pakistan and Sri
Foreign exchange earnings are heavily dependent on two items of export, viz., ready-made
garments and manpower. An adverse effect on either could lead to a quick erosion of the
success achieved in this regard and could create pressure on the country's current account
balance. Manpower export has already started to decline since 2009 and the growth of
remittances has declined sharply in 2010.
The vulnerability of the macroeconomic situation is indicated by the fact that although the
government declined IMF's assistance only in April 2010, it reversed that position before the
end of the year to accept a loan of US$1 billion with its associated conditionalities.
4. Poverty reduction and human development
Economic growth and per capita income provide only part of the story about success on theeconomic front. High rate of economic growth is only a means to the important goals of
reducing poverty, improving conditions of living of the people in general and achieving
shared prosperity. In that context, it would be important to examine the degree of success in
reducing poverty and achieving other Millennium Development Goals. Some relevant data
are presented in Tables 3 and 4.
As for the fight against poverty in Bangladesh, 1970s and 1980s may be regarded as lost
decades because the incidence of poverty (the proportion of people living below a poverty
line that is defined in terms of a level of income needed to meet certain basic needs of life)
actually increased during the first decade and fluctuated in the second. Only in the 1990s,
poverty started to decline on a sustained basis and came down from nearly 59 per cent in
1991-92 to 40 per cent in 2005. For 2009, the Planning Commission (in its revised PRSP II)
projected the incidence of poverty to be between 31.1 and 32.5 per cent. But that is based on
the assumption of unchanged relationship between economic growth and poverty reduction.
However, given the sharp increases in prices of food grains during 2007-08 and the adverse
effect of the global economic crisis during 2008-09, the relationship between economic
growth and poverty reduction may not have remained unchanged. One exercise by the World
Bank suggested that the shocks mentioned above could have reduced the decline in the
incidence of poverty by two percentage points. This implies that instead of 32 per cent, the
incidence of poverty in 2009 could be 34 per cent.
useful to look at such experiences from the point of view of developing strategies for more
inclusive growth.
The data on poverty presented above refer to what is known as “income poverty” (i.e.,
estimate of poverty based on income criterion); and it would be important to go beyond thatto see how the countries are doing in terms of other indicators of human development, viz.,
education and health. Some relevant data are presented in Table 4.
If one uses the rate of completion of primary education as the indicator of progress in
education (as opposed to simple enrolment because a vast proportion of those enrolled tend to
drop out), Bangladesh appears to be at the lowest level with only 56 per cent completing that
level. In terms of reducing child mortality, the performance of Bangladesh has been
commendable. The level of Bangladesh in that regard is better than that of India and Pakistan,
but is way behind Sri Lanka. But Bangladesh has not been equally successful in reducing
maternal mortality. The rate in Bangladesh is lower only compared to Nepal, and is higher
than India, Pakistan and Sri Lanka. So, there is a lot to do on that front as well. In terms of
child malnutrition also, the performance of Bangladesh is not very impressive; Pakistan and
Sri Lanka has done better.
On the whole, in the area of poverty reduction and human development, although Bangladeshhas made notable progress, the performance remains somewhat mixed, and there is no scope
for complacency. Even considering the fact that Bangladesh started its journey as an
independent nation with a very high incidence of poverty, over 50 million people remaining
poor and about 32 million suffering from acute poverty after forty years of independence is
not at all a comfortable and respectable situation.
5. How employment-friendly has economic growth been in Bangladesh?
Why does one need to look at the employment performance of the economy in addition to
growth and poverty reduction? The simple answer is that this is an important means of
translating the benefits of economic growth into poverty reduction and of achieving shared
and inclusive growth. Theories of development of economies with surplus labour and a dual
economic structure (i.e., the economy consisting of a small modern part and a large
traditional part) point out that the process of development involves a transfer of labour from
traditional economic activities characterized by low levels of labour productivity to modern
sectors with higher productivity. In order for such transfer to take place sufficiently rapidly soas to exhaust the surplus labour in the traditional sector in the shortest possible time, modern
sectors have to absorb labour at high rates. There lies the importance of the rate at which
modern sectors generate employment. They need to achieve rapid growth of output and
employment simultaneously. What has been the record of Bangladesh in this regard?
During the forty years after independence, the country has seen a significant degree of change
in the sectoral composition of employment. As positive developments, one can easily
mention the three million or so workers (most of whom are women) engaged in the ready-
made garment industry, although there are question marks surrounding the conditions of
work in the sector. One may also talk about other industries like leather products, furniture
making, ceramics, shipbuilding, etc. While some are traditional others are emerging and have
shown potential for growth. One may also talk about the growth of service sectors like trade,
finance, telecommunication, etc. But the real question is: what do all of them add up to?
The share of agriculture sector in total employment has declined over time, but the share of
manufacturing sector has not registered a corresponding increase. In fact, during the past two
decades, the share of manufacturing has increased only slightly (from about 10 per cent in
1999-2000 to 11 per cent in 2005-06). In this context, it may be useful to look at some
figures. In Bangladesh, approximately 2 million persons join the labour force every year. The
manufacturing sector is currently capable of absorbing less than 250,000 persons (or around
13 per cent of the annual addition). The rest are absorbed either in agriculture (about 737,000,
or 42 per cent), construction, and services of various kinds. In fact, the structure of employment in Bangladesh is becoming more service sector oriented. While some of the
service sector activities belong to the modern sector, the vast majority of them fall within the
traditional sector. In other words, the modern sectors of Bangladesh are not absorbing labour
at sufficiently high rate. In fact, the vast majority of workers in Bangladesh are engaged in
the so-called informal sector.
Another point of concern is the decline in the ability of the economy to create employment. It
needs to be noted that apart from special employment programmes (which should be seen astemporary measures), employment is created in the process of production. By the ability of an
economy to create employment, we mean the rate of growth of employment in relation to the
rate of output growth. In Bangladesh, during the 1980s, one per cent growth in GDP was
associated with an employment growth of 0.55 per cent. During the 1990s, this went down to
0.495 per cent. The manufacturing sector also witnessed a decline in the employment
intensity of growth during the 1990s compared to the 1980s. Data for the period of 2000s are
not yet available. Given the rapid growth of ready-made garment industry, one may expect a
reversal of the above-mentioned trend. But growth of only one such sector is not enough to
fully meet the challenge of growth of productive employment in the modern sector. A few