On 2009-10 economic growth

Posted in economics by jrahman on April 21, 2011

Every April or May, the Bangladesh Bureau of Statistics releases provisional national accounts for the current financial year.  Essentially, this involves taking the available data for the first 9 months or so of the year and estimating a year average.  Then, 12 months later, the final accounts are released.  Obviously, the final estimate is going to be reflect revisions to the provisional account. 

Now, if the BBS provisional accounts were unbiased, one would expect that revisions were equally likely to be upward or downward.  In some years, BBS would underestimate the strength of the economy, in other years it would overestimate things.  Turns out, BBS usually has a bias — its provisional estimates are more often than not too optimistic. 

This is shown in the chart o the left.  Here, the provisional growth estimate is on the vertical axis, and the final one is on the vertical.  If there is no revision in a year’s growth rate, then the dot will be on the 45 degree line.  Years where the final estimates are lower than the provisional one is below the 45 degree line.  In 12 of the past 16 years, the final estimates are lower than provisional (that is, provisional was too optimistic).  Only four years bucking this trend were 2000-01, 2003-04, 2004-05 and 2009-10. 

In its provisional estimate for 2009-10, the BBS had the economy growing at 5.5%.  This included the agriculture sector growing by 3% in that year.  The government strongly disagreed with the BBS assessment.  The Agriculture Minister publicly scolded the BBS officials.  And then, the 2010-11 Budget explicitly rejected the BBS estimate, claiming that the agriculture sector would have grown by 4.4% in 2009-10, and the whole economy would have grown by 6%.

In its final estimate, released recently, the BBS says the economy grew by 5.8%.  The agriculture sector growth, however, has been revised up to a whopping 4.9%.  To put it in context, in the past two decades, agriculture sector grew faster on only 4 occassions (of which, two were 1999/2000 and 2005-06, following the 1998 and 2004 floods respectively). 

That is, the final BBS numbers show a super duper harvest in the first half of 2010, coming after bumper crops in 2008-09.  Pity that these fantastic farm produces were not reflected in food prices, which continued to grow strongly throughout 2010 — see the chart below.


3 Responses

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  1. chorjapod said, on April 23, 2011 at 12:22 pm

    Few observations—
    Since growth of agricultural sector is measured in monetary terms, and growth of agricultural products is measured by quantity, it is possible to have an insignificant growth in volume (as BBS predicted earlier) while registering a better sectoral growth (as GDP estimate shows).

    Your inflation graph shows a very high food inflation rate, which would mean, price of rice/wheat/fish were higher in FY09-10, compared to previous year. Theoretically, this high growth should be seen in Current GDP, not in Real GDP growth since its inflation or GDP deflator adjusted. But there are some mismatches between inflation-accounting basket (price of items accounted for inflation monitoring) and GDP subheads. I suspect our real GDP is not properly inflation adjusted (keep in mind, our GDP base is still obsolete at 1995). But that would only add to your criticism of BBS I guess.

    But here is another possibility— can price of “essential” food products go down with higher production where—1. demand base for “essential” food products are still remains higher than the supply; and 2. where actual production cost was higher than usual? Is it possible that high-priced food import is now being replaced by high-cost local production?

    PS: I agree that GDP revision can be a funny business. Fiscal year 2000 was run by AL and before the upcoming election one departed soul (SAMS Kibria) conveniently announced a 6%+ GDP growth, first time in Bangladesh. Then BNP came to power and another departed soul (Saifur Rahman) conveniently downward revised the FY2000 GDP estimate to bring down the AL-time growth rate below 6% (and later, Bangladesh Economy crossed 6% growth during his regime). You may call this coincidence and I’ve been called a cynic before 🙂

    • jrahman said, on April 26, 2011 at 1:27 pm

      Intriguing possibility regarding high-priced imports being replaced by high-priced local production.

      I won’t call you cynic, though I thought what you describe happened in FY01 — the first estimate in May 2001 showed a 6%+ growth rate, which was revised down to less than 6% in May 2002.

      The GDP deflator should definitely be rebased — a lot has changed structurally since 1995. Also, there is no reason why BBS can’t publish quarterly national accounts. I don’t believe Indonesia or Philippines have more qualified statisticians than we do. Nor do I think their politicians are more ‘honest’ than ours. In fact, publishing quarterly accounts may help statisticians withstand political pressure.

      And of course, there is always the possibility of genuine revisions — these are all estimates, and any statistician will tell you about margins of errors etc.

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