Economic performance: Evaluation

That Bangladesh has recently been awarded the status of a Lower Middle Income (LMI) country by the World Bank (WB) is undoubtedly a great achievement of its valiant and hard-working people who have been historically tormented by the exploitative forces of political and economic aggression and devastated by exacting natural cataclysms. To attain the next milestone of Upper Middle Income (UMI) status, it is however important to objectively evaluate the nature of economic performance to this date and strategise for the future.

The income status of a country is determined by WB on July 1^st each year based on last calendar year's estimated annual Gross National Income (GNI) Per Capita (=GNI/Mid-year Population) in US Dollar terms (Atlas method). As of July 01, 2015, Bangladesh moved into the lower middle income class status as its 2014 GNI Per Capita of $1,080 exceeded WB's current minimum LMI threshold of $1,046. The threshold levels for various categories are adjusted each year based on inflation experience in US, UK, Japan and Eurozone. An earlier commentary explains the basics of national income measurement.

To appreciate Bangladesh's momentous achievement, we need to trace back the nation's audacious voyage. In 1973, the GNI Per Capita was a scanty $120. Over the next forty-one years, this would grow to a level 9.0 times high, indicating a cumulative annual growth rate (CAGR) of 5.50%. As the graph below shows, Bangladesh remained well below the LMI threshold entering the new millennium. With the LMI threshold growing at approximately 3% rate, Bangladesh got increasingly closer to the moving milestone.

Note that as population grows, the levels of total national income will automatically tend to grow and set new records; further, with larger levels, even a small percentage increase translate to a large change in the level. Therefore, economic performance evaluation need to consider the levels as well as growth rates. Setting new records in income level may not constitute worthy performance if better records (higher growth) were feasible/expected. The performance challenge is thus to grow the level at a higher pace, especially for improving the income status of the nation.

Aside from population size, domestic price level and exchange rate, the two key drivers of the GNI metric are the size of the domestic economy as measured by the Real (price-adjusted or constant prices) Gross Domestic Product (GDP), that is, the aggregate output (goods and services) produced in a country and the net receipts of wage and property income from abroad (income earned abroad by nationals less income earned by foreigners at home), the latter mainly driven by personal remittance of Bangladeshis abroad.

Available WB data indicates that the size of Bangladesh economy in 2014 (Real GDP: BDT 7.80 trillion) was 5.2 times its size in 1980 (Real GDP: BDT 1.50 trillion) logging a CAGR of 4.97% over the 34-year period. Undoubtedly, the RMG sector played a pivotal role behind this long-term growth. Available WB data shows that personal remittance received (current $) reached a dramatic 738.60 times level in 2013 ($13.86 billion) from a meagre beginning in 1976 ($18.76 million), clocking a CAGR of 19.54% during the 37-year span. This golden age of remittance growth can hardly be overemphasized since it provided a steady and fast increasing supply of foreign exchange needed to finance the imports that in turn fueled industrialization and export-led growth of Real GDP.

Two important sets of observations about the past performance are in order. First, to evaluate whether the performance was better under some governance regimes than others.  Second, placing the performance in perspective by way of comparing to other countries.

The graphs below present the annual growth rates for the Real GDP and Remittance. Contrary to the claims of the competing people/parties governing the country since 1980, there is no discernible difference in the growth rates during 1981-1990 (JP), 1991-1995 and 2001-2006 (BNP), and 1996-2000 and 2009-2014 (AL). This is not to downplay the gravity and critical role of strategic turning points such as the shift toward private enterprises, opening up of the economy and financial markets to foreign investors, establishing/strengthening political/economic/trade relations with important countries and agencies (regional or global), etc. The reality is that such strategic reorientations and global economic trends are long-term in nature and their impact realizes over multiple governance regimes.

In regards to comparative performance vis-à-vis other countries, an untold story is that a number of them (e.g., Indonesia and Maldives: 1994, Sri Lanka: 1998, Bhutan: 2007, India: 2008, Pakistan: 2009, Vietnam: 2010) attained the LMI status ahead of Bangladesh (and Myanmar in 2015). This begs the question whether Bangladesh could/should have done better. Similar observation applies when comparing the average annual Real GDP growth rates of Bangladesh with nine other countries in Asia and various groups (of countries).

Considering the overall period 1976 to 2014, Bangladesh's average annual growth of 4.84% ranks 9^th among the 10 countries with Bhutan's 7.64% topping the list. Except for the 1991-19195 years, Bhutan consistently outperformed Bangladesh. India, being the largest economy, should find it the hardest to grow faster on a sustained basis, but even India beat Bangladesh in all periods except 1976-1980. Of course global/regional development varies over time as shown by the growth rates of South Asia and other broader groups in the lower part of the Table above; such regional/global trends affect all countries including Bangladesh, for good or for worse. But notably Bangladesh lagged the South Asian overall growth experience in all but the 1981-1990 and 2007-2008 periods. The picture is clear and telling, the economic performance of Bangladesh could/should have been better.

The message is that the LMI status is a milestone all right, but the governance regimes collectively have fallen short in leading the nation to realize its economic potential, and hence LMI achievement should truly be considered a stepping stone for the next one. Supposing that WB's income thresholds grow at 2% (target inflation rate in many developed countries) and starting at Bangladesh's 2014 GNI Per Capita of $1,080, the required CAGR for GNI Per Capita to reach the UMI recognition by a given year (based upon previous year's GNI) are:  27.53% (2021), 10.91% (2031), 7.40% (2041) and 5.87% (2051).

Given Bangladesh's historical GNI Per Capita growth experience of 5.50%, achieving the UMI status at/before 2031 seems like a lofty goal as it requires doubling the growth rate and maintaining it through thick and thin. The year 2041 seems probable albeit optimistic, since this still requires a significant increase in CAGR. Further, the prior superlative experience of remittance growth will be extremely difficult to repeat going forward, if not impossible. Obtaining the required energy supply can be a drag, not to speak of the environmental degradation that the fast pace of industrial/manufacturing growth may entail. It thus seems that Bangladesh needs to strategically reorient itself toward a more human capital- knowledge-service based economy, with higher per capita productivity at home and earnings abroad, lower energy usage and lesser demand on the environment. Certainly the avoidance of self-inflicted losses from political instability and destructive politics will be helpful in attaining the required growth.

Dr. Mo Chaudhury, is a professor at McGill University, Montreal, Canada.