Will the country achieve high growth next year?

The World Bank recently projected Bangladesh’s GDP growth rate for the ongoing fiscal year 2024-25 will decrease to 4 per cent, which was 5.2 per cent in the previous fiscal year. Earlier, the global lender had forecasted a GDP growth rate of 5.7 per cent for this period. The IMF has projected a growth rate of 4.5 per cent. Many are trying to find fault with the interim government’s performance for this. After a mass uprising, it would not be surprising if GDP growth turned negative. In that context, these new forecasts are rather encouraging.

Over the last 15 and a half years, Hasina’s government has implemented a policy of increasing investment and government spending through various internal and external loans. The measures taken to artificially boost the country’s GDP resulted in an annual increase in the growth rate, which was not sustainable.

Despite taking foreign loans, private sector investment in proportion of GDP has fluctuated between 23 and 24 per cent over the past decade. However, GDP has increased as foreign and domestic loan funds have been spent on unnecessary projects. Government revenue collection in the country has decreased to 8 per cent of GDP. By increasing government spending through local and foreign loans, GDP has grown rapidly. But increasing government debt does not lead to a decrease in GDP.

According to a report published in the daily Bonik Barta on 7 August this year, the total internal and external debt of the Bangladesh government stood at over Tk 18.35 trillion as of 5 August 2024. In contrast, on 6 January 2009, when Sheikh Hasina assumed power, the total debt was only Tk 2.76 trillion. The difference in the figures is Tk 15.58 trillion.

Before fleeing the country on 5 August, Hasina left the country in a sea of debt amounting to Tk 18.35 trillion, while showcasing high per capita GDP growth. In 2024, the per capita debt burden exceeded Tk 100,000. For at least the next decade, the repayment of foreign loans will severely impact the economy.

Per capita GDP is obtained by dividing total GDP by the total population. Former finance minister Mustafa Kamal turned the Bangladesh Bureau of Statistics into a hub for “data doctoring” during his tenure as planning minister. Under his directive, the bureau began to inflate total GDP while understating the population figures.

Over the last decade, Hasina’s government has garnered praise both at home and abroad by promoting stories of high GDP growth. However, much of this was fictitious and baseless. The concept of per capita GDP itself is fundamentally flawed. Its most serious limitation is that it obscures income distribution disparities between a small number of wealthy individuals and the majority of low-income and marginal people. This means that if the income of a multimillionaire is averaged with that of a poor person with zero income, the latter’s per capita income would appear in millions.

If income inequality increases alongside per capita GDP growth, the benefits of GDP growth accumulate in the hands of a few wealthy individuals, leaving the majority deprived of their fair share. One way to measure this inequality is through the Gini coefficient. When everyone’s income is equal, the Gini index is zero; if all income is concentrated in one person’s hands, the index will be one. The greater the index between these two limits, the more inequality exists.

In Bangladesh, the Gini coefficient was 0.36 in 1973. It increased steadily from the 1980s to reach a staggering 0.499 in 2022. A Gini coefficient above 0.5 categorises a country as having “high income inequality”. Therefore, it is undeniable that by 2024, Bangladesh has become one of the countries with “high income inequality”.

This strategy of artificially increasing the GDP growth rate through excessive borrowing has plunged the entire nation into a massive long-term debt crisis. This is particularly dangerous because a significant portion of this debt has simply been siphoned off abroad through capital flight. Capital flight became the “number one problem” during Hasina’s tenure. A New York-based research organisation, Global Financial Integrity, claims that from 2009 to 2024, approximately $149.20 billion has been siphoned off from Bangladesh.

Hasina’s authoritarian regime has crafted a narrative of impressive per capita GDP growth for the past 15 and a half years, while looting the country and transferring most of the wealth abroad. Allegations of capital flight are particularly directed against many associated with the Sheikh family, alongside corrupt oligarchs, politicians, and bureaucrats. “In 2009, Sheikh Hasina stated that the BNP has made a lot of money. Now we need to make money with two hands,” Sohel Taj, son of Bangladesh’s first prime minister Tajuddin Ahmad, quoted Sheikh Hasina as saying while making the allegation.

Now, during the interim government, capital flight has significantly decreased. Consequently, both private sector investment and government expenditure are expected to decline considerably in the current fiscal year. So, the GDP growth rate is also expected to drop.

Additionally, political instability following protests and uprising in July, August, and September, coupled with production crises in the garment sector, has disrupted overall output. These negative effects have harmed GDP growth. Thus, if the growth rate falls to 4 per cent or 4.5 per cent this fiscal year, it would not be surprising.

However, there is also reason for hope. Under the leadership of professor Yunus, the government is adopting and implementing appropriate policies to steer the banking sector and the overall economy back on track. Due to professor Yunus’ personal reputation, approximately US $10 billion in foreign aid is expected to flow into the economy within the next few months. This assistance will boost the country’s foreign currency reserves by several billion dollars. Bangladeshi expatriates have created a surge in remittances sent through formal channels. If this trend continues, the economy is bound to see positive changes.

Most importantly, the current government is patriotic and committed to remaining free from corruption. Therefore, it is logical to expect that in the upcoming fiscal year, the country will return to the path of high growth.

* Dr. Moinul Islam, is an economist and former professor at the Economics Department, Chittagong University.

* This article, originally published in the print and online edition of Prothom Alo, has been rewritten in English by Rabiul Islam