Charting Progress 6 – Investment

The current Covid-19 pandemic notwithstanding, in its 50^th year, Bangladesh has an impressive economic record to celebrate. After accounting for changes in prices, the average Bangladeshi earns three times that of their grandparents in the former East Pakistan. Millions have escaped poverty over the past decades. These impressive achievements are reasonably well known.

Less well understood are the mechanics behind the country’s economic development thus far, and the prospects for the coming years. For example, exports of readymade garments have undoubtedly played a vital role in the country’s development. Yet, Bangladesh remains over-reliant on the sector, isn’t particularly open to foreign trade and investment, millions still remain outside the formal labour market, and the average Bangladeshi worker in industry and services sectors remain far less productive than their peers in Southeast Asia.

Unfulfilled potential is one way Bangladesh could be described. And this description appears even more apt when the country’s investment records are considered. 

Trendspotting: June 2021

According to the recently announced 2021-22 budget, the economy is supposed to have grown by 6.1% in the 2020-21 financial year. In contrast, the Asian Development Bank is more bullish, with a growth forecast of 6.8%, while the World Bank is far gloomier, projecting only 3.6% growth for the year.

Our charts suggest that there are positive signs, but also grounds for caution.

The most significant positive changes in the last three months are:

—   imports growing by 11% in the year to March 2021;

—   tax revenue growing by nearly 7% in the year to April 2021;

—   remittances continue to grow; and

—   over 90,000 workers left for overseas in March-April.

However, the recovery is far from guaranteed, as:

—   electrical generation remains low;

—   there is very minimal growth in industrial production;

—   there is minimal growth in exports; and

—   credit to private sector is still slowing down.

Importantly, these indicators do not fully take into account the pandemic wave of April-May.

Overall assessment

Bangladesh economy, already slowing before the Covid-19 recession, is yet to show any sign of a durable growth. That said, there were flickers of recovery in some indicators. Production as well as household demand appeared to have bottomed out by March-April (that is, before the latest lockdowns). Labour income appeared to be recovering, and food prices were stabilising towards the end of 2020. Policies are supportive of growth. Stock market appears to be optimistic.

Charting Progress 5 – Openness

The Liberation of War on 1971 was not just one of the worst humanitarian tragedies of the 20^th century, it also left significant material footprints. Average incomes fell by about a fifth in what was already one of the most impoverished places on earth. Pre-war income levels wouldn’t be reached until the early 1990s. Since then, however, average incomes have tripled, significantly reducing poverty along the way.

Over time, sustained rises in income reflect either a growing pool of workers, or the average worker becoming more productive. The progress notwithstanding, Bangladesh has significant unfulfilled potential. Millions still remain outside the formal labour market, and the average Bangladeshi worker in industry and services sectors remain far less productive than their peers in Southeast Asia.

Countries that are open to foreign trade and investment tend to create more jobs, and their workers tend to be more productive. On both counts, Bangladesh is behind Southeast Asian neighbours.

Ray at 100

When Shashi Kapoor passed away a few years ago, my Facebook was abuzz (or should I say alight?) with clips of “mere paas maa hai” — the retort of an honest police officer to the taunts of his gangster brother flaunting his ill-gotten wealth in the 1970s blockbuster Deewar.

I wanted to post about Kapoor as my favourite childhood hero. I was sad to find no clip of Kissa Kathmandu Ka — Satyajit Ray’s small-screen adaptation of his Feluda caper in Nepal. Granted, the TV movie wasn’t Ray’s finest, but all sorts of weird and improbable stuff can be found online — why not this, I wondered.

My mind then wandered to why Ray cast Kapoor and not Amitabh Bachchan, the only tall man in India, for the role of the towering Bangali detective. Perhaps it was because Bachchan was, by then, too busy with politics. But that leads one to wonder why Ray hadn’t made a Hindi Feluda earlier.

Charting Progress 4 – Productivity

Over time and across countries, differences in living standards ultimately come down to the differences in productivity. Productivity growth in developing countries, in turn, reflect two processes: structural changes in the economy; and adoption of new technologies and better practices from more advanced economies (the so-called ‘catch up’ growth). Bangladesh has been experiencing both processes over the past few decades.

Trendspotting

Bangladesh’s economy, already slowing before the Covid-19 recession, is yet to show any sign of a durable recovery. Production measures appear to have bottomed out, but perhaps not quite so for household demand. While labour income is recovering, food prices spikes point to problems in the farm supply chain. Policies are supportive of growth. Stock market appears to be optimistic.

Still the guitar gently weeps

It was the first Bangladeshi wedding of its kind in that city — two “young” people meeting, falling in love, and marrying, with no family in the continent, friends were all they had to share their joys with. The night before the wedding, there was a little get-together at the groom’s apartment. There was a lot of nostalgia, fuelled by intoxicants of many kind. 

And then the music came on — Bang-la-desh, Bang-la-desh … followed by a wailing guitar — there were no dry eyes in that room.

Charting Progress 3 – labour

This series marks fifty years of Bangladesh with a set of charts each month to show the country’s economic evolution. Previously: GDP per person; poverty and inequality.

Over time, an economy grows from two sources: the number of workers in the formal market, and the productivity of each worker. The economic growth in Bangladesh has accelerated steadily in the past three decades, but employment growth made a stronger contribution to growth in the 1990s than in recent decades (Table 1).

Table 1: Sources of economic growth

	GDP	Employment	Productivity
1991-2019	5.7	2.4	3.4
1990s	4.8	2.9	1.9
2000s	5.6	2.1	3.5
2010s	6.9	2.2	4.7

Source: World Bank World Development Indicators.

Money is no problem?

The central bank is a key institution in the modern economy. Its function is to maintain stability in the macroeconomy and the financial system. In the advanced capitalist world, macroeconomic stability has come to mean maintaining price stability while growing the economy as close to its potential pace as possible. In addition to these, for a developing economy, macroeconomic stability could also mean exchange rate stability or maintaining solvency of the government. Financial system stability means maintaining a functioning banking system, keeping the credit flowing, and acting as the lender of the last resort.

During the COVID-19 pandemic, central banks around the world have had to balance all these tasks, and the Bangladesh Bank is no exception. In its latest Monetary Policy Statement, issued for 2020-21 financial year, the central banks states that —monetary policy stance monetary programs for FY21 are essentially expansionary and accommodative for all growth support needs without impairing attainment of the targeted inflation containment.

With inflation hovering around 5-6% (Chart 1) and expected to remain moderate into the foreseeable future, supporting economic growth has, quite rightly, been the central bank’s focus.

Has money been a problem for the economy during the pandemic?

Charting Progress 2 — poverty and inequality

This series marks fifty years of Bangladesh with a set of charts each month to show the country’s economic evolution. Previously: GDP per person.

A Bangladeshi today is about three times as well off than their grandparents were on the eve of the Liberation War. But have the poorer sections of the society benefitted from the economic growth of recent decades?