Bangladesh Economy: Macroeconomic Performance

BANGLADESH ECONOMY: MACROECONOMIC PERFORMANCE*

I. INTRODUCTION:

The Bangladesh economy has experienced both macro-economic stability and robust economic growth following the transition to a democratic rule in the early of 1990s. In the backdrop of the deep macro-economic crisis of the late 1980s, a series of stabilization measures were introduced in the Bangladesh economy which largely restored macro-economic stability in the early 1990s. Subsequently, the Bangladesh economy registered an average GDP growth rate of 4.8 per cent in the 1990s, which was one full percentage point higher than that recorded in the previous decade (i.e. 3.8 per cent) (Bhattacharya: 2002). Despite of such impressive growth throughout the decade, the per capita income of Bangladesh at the beginning of the new decade was not only the lowest among the South Asian countries, but also below the average per capita income of the least-developed countries (LDCs). Within the decade of the 1990s, the second half demonstrated an even more impressive growth performance (5.2 per cent, FY96-00) in comparison with the first half (4.4 per cent for FY91-95). However, the per capita growth rate of 4-5 per cent is impressive by LDC and even developing country standards.

Indicator FY91-00 FY91-95 FY96-00 FY01-04 FY05* FY06*

GDP Average Growth Rate

(per cent) 4.8 4.4 5.2 5.1 6.0 6.5

Notes: * indicates PRSP Projections

Source: Computed from CPD-IRBD Database and BBS Data

The macroeconomic developments in Bangladesh since the beginning of the 1990s, until middle of the decade, were characterized by a record-low rate of inflation, an unprecedented build-up of external reserves and an improved resource position of the government. These developments have been interpreted in part as evidence of successful macroeconomic stabilisation, but also in part as symptoms of economic stagnation. The changes in the macroeconomic trends in the early 1990s came in the wake of a transition to a democratic rule along with the launching of a comprehensive programme of market-oriented liberalizing policy reforms. After that period there was a evident in a build-up of inflationary pressures, a deterioration in the government's budgetary balances and a rapid draw-down on foreign exchange reserves. (Mahmud: 1997)

Since the beginning of the new decade after 1990s, the Bangladesh Economy was facing possibly the most severe exigency after the macroeconomic crisis of the late 1980s. The enormous achievements of the 1990s have fallen under threat because of the twin shocks emanating from large fiscal deficit and deteriorating balance of payment position that have exposed the entrenched vulnerabilities of the Bangladesh. It appeared that both the pillars of success of the macro-economy, viz. stability and growth, were in peril. But the pressure has been accentuated by a benign neglect in undertaking necessary reform measures to improve the competitiveness of the economy. However, the obtaining situation has been aggravated further by a confluence of external factors ranging from global recession and practices of discriminatory trade preferences to terrorist attacks in the USA on September 11, 2001 (Bhattacharaya 2003).

II. GROWTH, SAVINGS AND INVESTMENT:

II.1 Growth

The Bangladesh Economy has experienced acceleration during the 1990s in comparison to the 1980s. The economic growth of Bangladesh has routinely registered 4 per cent plus growth in the 1990s (Figure 1). In the 1990s, the growth momentum was higher during the second half of the decade in comparison to the first half: average growth rates were 4.4 per cent (FY91-95) and 5.2 per cent (FY96-00).

Figure 1: Trend in GDP Growth (FY91-FY05)

According to the BBS, the Bangladesh economy posted a growth of 5.5 per cent during FY04 as against 5.3 per cent in FY03 and 4.4 per cent in FY02. And I-PRSP projections indicate that GDP growth rate will grow at 6.0 per cent in FY05 and reach to 6.5 per cent in FY06.

II.2 Sectoral Contribution to Incremental Growth

Analysis of the sectoral growth figures show that within the real economy sectors such as Industry demonstrated stronger growth during the first half of the 1990s as against the impressive performance of the Agriculture in the subsequent period. It should be noted that during the second half of the 1990s, the Agriculture and Industry emerged as the major source of GDP growth in comparison to more pronounced role of the Service Sector in the earlier half of the decade.

But in the recent time Service Sector again dominates as the major source of GDP growth and accounted an average of more than 50 per cent from FY01-FY04 (Table 1).

TABLE 1

Trends in Incremental Contribution of Sectors in GDP Growth

FY91-95 FY96-00 FY01-04

Agriculture Sector 20.46 18.05 9.50

Industrial Sector

Manufacturing Sector 25.91

20.26 33.92

20.09 35.54

18.35

Service Sector 45.73 42.26 54.67

Source: Computed from CPD-IRBD Database and BBS (Various Issues)

II.3 Skewed Structural Transformation

The ongoing structural transformation of the Bangladesh economy is charaterised by the falling share of the Agriculture sector with marginal increase of the manufacturing in the backdrop of increasing contribution of the service sector. In FY01-04, the real economic sector accounted for 39.3 per cent of the GDP; the said proportion was 40.98 per cent for the period of FY91-95 and 41.25 per cent in FY96-00. This suggests that in spite of improved growth, the evolution of the Bangladesh's economy remains biased against modern, industrial transformation having concomitant implications for sustained growth and equitable income distribution

II.4 Income Distribution

In spite of improved growth throughout the 1990s, income distribution deteriorated during this period coupled with slow pace of poverty alleviation. The per capita income of Bangladesh at the beginning of this decade was not only the lowest among the South Asian

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