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State of economy
Two recent articles by Ahsan Mansur on the current economic conditions of Bangladesh published in DS have received my attention. To start with, I would like to congratulate the author for his interesting thoughts. His second article particularly addresses the concerns of some politicians, TV talkshow hosts and donor agencies who think that Bangladesh is heading towards a recession. Mr. Mansur provides us with some statistics on export growth, domestic credit growth, net foreign asset growth and growth of tax-revenue income for the last year - all indicators show that real economy is in the growth path.
However, these are demand-side indicators. No data concerning consumption and saving were provided. From the provisional estimates of 2007, I find that consumption is 79.5% and domestic saving is 20.5% of GDP. These statistics show almost the same pattern of the last few years.
I do not have disagreement with the overall conclusion that Bangladesh economy is not in reces-
sion. If we look at some provisional estimates of supply side indicators for 2007, that is, sectoral growth of industry (9.5% compared to 9.7% in 2006), service (6.74% compared to 6.4% in 2006, agriculture (3.18% compared to 4.94% in 2006) - we see that all indicators in 2007 are almost the same of the previous year except agricultural production. Considering the value addition method, Bangladesh Bank projected that the current year's GDP growth would be around 6.5% - almost the same as the previous year but lower than what was expected.
Although the provisional estimate of agricultural production growth seems lower than the previous year, it is expected to recover once the seasonal boro rice production starts. Boro production accounts for around 50% of the total rice production in Bangladesh. The hurricane Sidr and floods have caused damage to a part of Aus (10% of total production) and Aman (40% of total production) rice production, but not to boro.
Therefore, Sidr or flood should not have much negative impact on the total rice production as well as on the real GDP growth.
It seems that high inflation or current political transition do not have much negative impact on the economic growth, particularly on the domestic production. This is not surprising in the sense that it is well argued by economists and noneconomists alike that economic growth in Bangladesh is mainly driven by individual initiatives with minirnum/negligible efforts from the government. Note that many empirical studies show a positive relationship between inflation and growth. For example, moderate inflation is helpful to growth, but faster economic growth feeds back into inflation. If non-tradable sectors like financial intermediaries, telecommunication sectors etc. grow rapidly, they may have impact on the price of tradable sectors. Both sectors enjoy die fruits of inflation. So the cost of
inflation should be subtle on the society - one example may be what Mr. Mansur cited in his previous article that rice price hike would help poor farmers. However, what's worrying is the situation of the fixed-income people, if their wage (real wage) is not increased. On the other hand, there are some uncertainties among the business community about the successful transition to a democratic government or whether the ongoing reforms in various areas such as in the areas of governance, financial sector or politics will sustain in the long run. Sometimes, as history taught us, partial reforms may lead to another crisis. If we assume that there will be a smooth transition to a democratic government by the end of 2008 and rule of law will be established, it is expected that business confidence will be restored and economy will grow at a faster rate.
Dr. Monzur Hossain
Assistant Professor of Economics
A1UB