Mukti

CPD vs Mr Muhith

Posted in economics by jrahman on June 12, 2011

 

One of the less discussed side effect of 1/11 was the loss of quality output from Centre for Policy Dialogue.  For the uninitiated, the Dhanmondi-based think tanks styles itself as Bangladesh’s Brookings.  And under Debapriya Bhattacharya, the organisation did produce several in-depth and critical analysis of Bangladesh’s economy and public policy in the middle of last decade. 

Then 1/11 happened, and Mr Bhattacharya was sent to Geneva by the then regime.  Analytical products churned out by CPD in the following few years were of a far lesser quality.  However, he seems to be back in Dhanmondi, ostensibly as a ‘Distinguished Fellow’ (whatever that means).  And their latest assessment of the economy is easily one of the best out of Dhanmondi in recent years (and one of the most comprehensive report on the subject). 

This doesn’t mean I agree with everything in the report — this is economics, there is always another hand, always something to disagree on.  But I’ll shelve detailed discussion of the report for later.  For now, let me focus on why it has earned CPD the ire of the Finance Minister. 

The Finance Minister has said the report is ‘totally rubbish’ because it raises questions about recent economic growth performance.    Over the fold, I give a primer of the issue, the CPD’s argument, and my take on it. 

Let’s begin with a quick recap

The Bangladesh Bureau of Statistics in its preliminary estimate in May 2010 said the economic growth in 2009-10 was going to be 5.5%, owing to a lackluster agriculture sector.  The Agriculture Minister took umbrage, and the Budget 2010-11 put aside the BBS figures and used estimates produced by the Ministry of Finance that put the growth rate at 6%.  A year later, the BBS ‘final’ estimate put the growth figure at 5.8%.  And then, in its latest, post-final, estimate, the number is put at 6.1%. 

Then, for 2010-11 (the financial year that will finish in two weeks), the BBS preliminary estimate puts the growth figure at 6.7%.  Oh, by the way, the 2010-11 Budget projected a growth for the year of 6.7% — that is, the BBS is showing Mr Muhith to be on course for meeting a key macroeconomic target.

And the folks in CPD is putting this achievement in doubt.  They think the growth figure may be closer to 6.3% mark that ADB estimates.  No wonder Mr Muhith got annoyed enough to call the CPD chaps ‘naughty’.

Now, does CPD have a case to be sceptic?

Their first argument is based on the observation that while the economy has accelerated, investment has stagnated as a share of GDP (total production/expenditure in the economy).  As a general rule, economic accelerations are either accompanied by investment boom or strong productivity gains.  Since everyone agrees that investment remains hobbled, then for the economic acceleration to be real, there must have been productivity improvements.

Was there? 

Well, let’s think this through a bit more.  During the mid-2000s, Bangladeshi economy grew pretty consistently at over 6% a year.  Then in 2007-08 and 2008-09, the economy slowed slightly, first as a result of the post 1/11 uncertainty, and then because of the Great Recession.  If Bangladesh’s ‘trend’ growth rate is somewhere around 6.3%, then a couple of years of slower growth can well be followed by a couple of years of faster growth without any additional investment or productivity.  And indeed, CPD acknowledges this possibility. 

So on this, I score it for Mr Muhith.  Of course, this doesn’t negate the argument that we need more investment, or that productivity needs to rise.  But those are different arguments.

However, CPD is on far safer grounds when it comes to details of the BBS revisions and estimates. 

For 2009/10, the BBS revised agricultural production from 2.8% to 5.6%.  That is a better harvest than any year in the past two decades bar 1999-2000 (which followed the rebound from a devastating flood).  Further, CPD points out that cereal production (which account for 60% of total farm production) grew by only 3.1% in the year.  And then, according to the preliminary estimates, we are expected to see another bumper crop in 2010-11, even though the current year’s aus and aman crops face downside risks from lower acreage sown and inadequate rainfall. 

If agricultural production 2009/10 looks incredibly high, then for 2010/11 it’s the manufacturing where things look too good.  Manufacturing production is expected to be 9.5% this year, up from last year’s 6.5%.  To be sure, this could have happened due to the expected exports boom.  On the other hand, small manufacturers (who produce about a third of total manufacturing output) actually saw productions fall sharply in late 2010.  And the energy crisis has not been exactly conducive to a manufacturing boom. 

That is, there are reasons to be somewhat sceptic about the BBS estimates. 

Now, let me stress the word estimates.  Almost all economic statistics are estimates, and therefore subject to revision.  As these things go, an initial figure of 5.5% revised up to 6.1%, or a figure of 6.7% revised down to 6.3% is not really a big deal.

What makes them big deal is the outlandish reaction of politicians to these technical questions.  The current Finance Minister saw ‘political motivation’ behind the CPD report.  One of his predecessors said ‘CPD ki amaar baap lagey’

Instead of seeing conspiracies and showing outbursts, Mr Muhith would do well to listen to CPD’s suggestions about increasing transparency in the BBS’s national accounting system. 

An alternate explanation of the change in the quality of CPD output, fellow Drishtipat writer Syeed Ahamed has returned home to Dhanmondi after a few years.  I should also note that this is the first time in three years that DWC has been silent in the Budget week.  Correlation or causation, you be the judge.

(One of the three people above has nothing to do with this post, but is surely more attractive than anyone mentioned here).

Advertisements

Comments Off on CPD vs Mr Muhith

%d bloggers like this: