Where did the benefits of economic growth disappear?

There is some disquiet among economists about the quality of data provided by Bangladesh Bureau of Statistics (BBS). No less a person than the Economic Adviser to the Prime Minister has expressed his dissatisfaction about the qualifications of the BBS staff and the quality of their work. These are very long standing problems, and yet, very little has been done to improve the quality of the services provided by BBS.

The government is perhaps more worried about the embarrassment an efficient BBS can do to its image with correct data than the harm an inefficient BBS can inflict on policy making and, the economy with incorrect data.

The current feeling of consternation originates largely from the fact that macroeconomic data, such as economic growth rate, is frequently not consistent with other data, such as credit, export and import etc. with which they are supposed to be correlated.

Significantly, the latter is not provided by BBS, but by other government organisations such as Bangladesh Bank, National Board of Revenue and Export Promotion Bureau.

Inflating the data!

They provide high frequency data on a monthly basis with a short lag, which is more reliable. Reassuringly, most of the data can be crosschecked easily. For example, bank credit data provided by Bangladesh Bank can be cross checked against credit data of all individual banks. Any large unexplained discrepancy will be quickly discovered and corrected.

Forecasts of economic growth are made by local and foreign experts on the basis of available information on a host of variables, including international trends and current data on domestic production and expenditure as well as high frequency data as mentioned above.

Curiously, these forecasts have been always significantly lower than the final BBS estimates during the last several years. This pattern of non-random errors in the forecasts has led to the suspicion of inaccuracies, or worse, wilful manipulations of the national accounts data.

In the absence of a robust explanation as to why these experts could be mistaken, the suspicion has grown to almost a conviction. This is an unnecessary and avoidable situation that adversely affects the quality of analyses and evidence-based policymaking.

It has escaped notice that the national accounts estimates are also not consistent with some micro level data that provide a very good insight into the economic well-being of the ordinary people of the country.  The BBS does an extensive and thorough survey of income and expenditure of households about every five years. The final report of the Household Income and Expenditure Survey done in 2016 (HIES2016) was released recently. It provides micro level data on numerous household attributes such as size, education, health, income and expenditure etc.

Since the household sector comprises the entire population, these data are more relevant to the living standards of the ordinary people of the country than the national accounts data which provide aggregate measures on a few variables only.

HIES are a rich source of both time series and cross section data that can be used to seek answers to a variety of research questions.

Household income: behind the rosy facade

Household income and consumption as estimated by HIES2016 are given below in Table 1. The nominal income and consumption both increased by about two-fifths since the last HIES was done in 2010. These were highlighted when the survey results were released. However, there is no definable relationship between household nominal income and its purchasing power. The latter is captured by real income. Similarly, the actual volume of consumption is expressed by real consumption. Real income and consumption are derived by deflating the nominal amount by the consumer price index (CPI).

Economic growth of a country is represented by the growth of real income or output. The estimated real values of household income and consumption are shown in column 5 and 6. It is immediately apparent that the real magnitudes suggest a very different pattern of change than that by the nominal amounts; the household real income has actually declined by 11 percent between 2010 and 2016. Real consumption also declined by about the same proportion during these years.

But according to BBS national accounts statistics, the real national income of the country has risen by more than 42 percent between 2009-10 and 2015-16 while the real per capita income has risen by 31 percent.  In other words, at the national level, each individual member of the total population, on average, has contributed to 31 percent increase in real income during these 6 years. This increase in income was accompanied by a similar increase in real consumption per capita.

In stark contrast, according to HIES2016, each person at the household level actually received an income (household income divided by household size) that was 2 percent less than what they had received in 2010 and the real spending for consumption of each decreased by about 1 percent.

The changes in per capita income and consumption that can be gleaned from the national accounts data are thus opposite to the information provided by HIES2016. The differences between the HIES and the national accounts data are rather too large to be ignored as statistical errors or due to different methods of calculation.

Note that there was no large discrepancy for the period 2005 to 2010. The HIES2016 data clearly indicates that the household sector comprising the entire population has missed out entirely on the growth dividend of the period 2010 to 2016 that should have normally been accrued to them. The share of government revenue in national income also did not increase during this period.

Where did the benefits of economic growth disappear? The Planning Ministry (which oversees BBS) owes an explanation to the nation about the sources of this anomalous finding.

The calorie quotient

The reduction in per capita real income is given some support by the nutrition data of HIES2016. Globally, there is a strong correlation between income and calorie consumption. People in the richer countries consume more calories than those in the poorer countries. The data of earlier HIES also suggest that richer people of the country consume more calories than the poorer people.  An alarming finding of HIES2016 is that the average calorie intake per person has declined by 5 percent from 2318 Kcal in 2010 to 2210 Kcal in 2016 alongside a reduction in real income.  A joint FAO and WHO study mentioned that the average calorie intake should be 2430 Kcal (Country Nutrition Paper 2014). The daily intake of calorie in 2010 was already 5 percent below the recommended amount, but a further reduction to 9 percent in 2016 raises the real prospect of stunting and wasting of children as well as a generally poor health of the population. This does not augur well for the country: its population does not appear to be in a fit state to fully utilise the opportunity for demographic dividend.

Falling income is also hinted by another comprehensive study of BBS, Revision and Rebasing of Wage Index (WRI) from 1969-70 to 2010-11. Its findings indicate that the real wage of the ordinary workers in the informal sector, who constitute about 85 percent of the labour force, fell by more than 7.5 percent between 2010-11 and 2014-15. Such a reduction must have exerted a strong downward pressure on household income since wages are a large part of household income.

Gini Coefficient

Another alarming finding reported by HIES2016 is a substantial increase in the Gini coefficient. The income distribution has moved against the poor including the wage labourers very markedly. The poorest one-fifth of the household population received 2.78 percent of the total income in 2010, but by 2016 their share has declined to a measly 1.24 percent.

On the other hand, the top 5 percent households have increased their share from 24.6 percent to 27.9 percent during the same period. Enriching the richest at the expense of the hapless poorest has apparently gained momentum during the last 6 years. This has reversed the trend of the previous 5 year period.

The Gini coefficient had declined from 0.467 in 2005 to 0.458 in 2010 heralding the prospect of a progress toward a more egalitarian society. But the hope has been nipped in the bud with the Gini coefficient shooting up considerably to attain its highest ever level of 0.483 in 2016. This puts Bangladesh in the company of the least egalitarian countries of the world.

It is surprising that with real per capita income at the household level not rising at all between 2010 and 2016 and the Gini coefficient worsening, the head count poverty rate declined so markedly from 31.5 to 24.3 percent during these years.

The national accounts data of BBS paint a glowing picture of Bangladesh as a stable high performing dynamic economy. But the HIES2016 findings suggest a stagnant lacklustre economy where the household sector (comprising the entire population) have completely missed out on the benefits of the high economic growth with both their average income and consumption falling. These contradictory findings from the data of two of the most widely used BBS sources are likely to deepen the suspicion regarding BBS data quality and further erode its credibility unless some satisfactory explanations are offered.

Table: Household income and consumption

Year	Per household		CPI	Per household		Per capita
	Nominal Income	Nominal consumption	2005-06=100	Real income	Real consumption	Household real income	Household calorie intake	Real gross national income
2016	15,945	15,420	220	7,252	7,014	1,786	2,210	4,840
2010	11,479	11,003	141	8,130	7,792	1,807	2,318	3,700
2005	7203	5964	100	7203	5964	1,391	2,239	2,660

Source: BBS, Household income and expenditure survey 2016; FAO and WHO, Country Nutrition Paper: Bangladesh 2014; Bangladesh Bank, Monthly Economic Trends.