Bangladesh shows impressive GDP growth but inequalities are increasing

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There is a sharp difference of opinion between the Bangladesh government and independent economists on the consequences of the trajectory the country's throbbing economy has been taking in recent years.

While the government trots out statistics to show that the country' impressive economic growth has not by-passed the poor, independent economists like Dr.Debapriya Bhattacharya see the growth leading to increasing inequalities.

It will not be far-fetched to imagine that if the latter trend is unchecked, the country could face unrest which, in turn, could be exploited by Islamist radicals waiting in the wings to stage a comeback after the blow they suffered at the hands of Prime Minister Sheikh Hasina in 2016.

In his Abdul Ghafur Memorial Lecture in November 2018, Dr.Debapriya Bhattacharya, Distinguished Fellow at the Dhaka-based Center for Policy Dialogue (CPD) acknowledges that Bangladesh has achieved 'spectacular' economic growth in the recent past. In 2017-18, it became a US$ 275 billion economy moving several notches up since 2000. Goldman Sachs included Bangladesh in the 'Group of Next-11'. In 2015, Bangladesh's status changed from Low Income Country to Middle Income Country.

'But, has the growth brought about a structural change in the economy?' Dr.Bhattacharya asks. And his answer is 'no'.

Though the contribution of industry has been increasing and that of agriculture is declining, the main growth is in the service sector, especially trade.

'Between 1990–91 and 2017–18, the greatest increase in the share of the GDP was in manufacturing (from 12.2% to 21.9%). The largest decrease was in the agriculture sector (from 28.7% to 13.7%).Nonetheless, Bangladesh's economy continues to remain a service sector-dominated one with this sector accounting for more than half of the GDP.'

'The single most important subsector of the services continues to be wholesale and retail trade, commanding more than a quarter of it.'

Bhattacharya believes that there has been no 'structural transformation; in the economy despite GDP growth. Structural transformation is needed for healthy growth or growth with equity.

'Structural transformation essentially entails relocation of labuor and capital from sectors with low productivity to high productivity. But a recent study at CPD showed that during 1990–2015, there was little or no such relocation. Moreover, performance in export diversification was also poor,' Dr.Bhattacharya points out.

Poverty Reduction

The share of the population living under the Upper Poverty Line more than halved between 2000 (48.9%) and 2016 (24.3%). In terms of the Lower Poverty Line, the share of people living in extreme poverty became almost one-third (34.3% in 2000 to 12.9% in 2016).

The decline in the share of poor under the Upper Poverty Line was more in the rural areas as compared to the urban areas. The reduction of 'hard core' rural poor had been faster in the rural areas.

All very good signs. But the rate of poverty reduction saw a slowdown in the post-2005 period, notwithstanding the acceleration of the GDP growth rate, Dr.Bhattacharya notes.

Need For Inclusive Growth

What Bangladesh needs is not growth for growth's sake, but 'inclusive growth' he says. He points out that in the recent Oxfam report on 'The Commitment to Reducing Inequality Index 2018', Bangladesh is among the 10 worst performing countries as per the CRI index. Bangladesh was ranked 148th among 157 countries based on three criteria (i) spending in health, education and social protection, (ii) progressivity of tax policy and (iii) labor rights and minimum wages.

The rich are getting richer, and the poor are getting poorer, Dr.Bhattacharya points out. 'According to the World Ultra Wealth Report 2018, Bangladesh was on the top 10 fastest growing Ultra High Net Worth (UHNW) countries during the period 2012-2017. In other words, individuals with a net worth of US$ 30 million or more have grown fastest in Bangladesh during the last five years in comparison to among other countries in the world!'

'Furthermore, consumption inequality has risen in the rural areas in the last six years. The rural economy, in terms of consumption, is becoming as unequal as its urban counterpart.'

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Inequality of Income

A disaggregated look at the income distribution profile of households reveals an alarming trend of income concentration. There has been an acute marginalization of the bottom 5% of households (in terms of income level) between 2010 and 2016. This strata has lost out in both urban and rural areas, the economist says.

'The poorest 5 per cent population of Bangladesh in 5 years (2010-16) lost out 2/3 of their share and now commands only a minuscule 0.23 per cent of total income,' he points out.

Lower Middle Class Also Loses Out

Dr.Bhattacharya observes that like the poor, the Lower Middle Classes have also lost in terms of share of income.

'Indeed, if one moves up the income scale, we observe that not only the poorest section of the society, even the lower middle class has experienced erosion of its income share.'

'The income share of the bottom 40% of the population went down between 2010 and 2016 with the rural area experiencing such erosion more than the urban area. On the other hand, the top 10 per cent, together with the top 5 per cent households, enhanced their share of income between 2010 and 2016. And such increase in income concentration had been much higher in the urban areas.'

' The current nature of economic growth is favoring the urban rich and rural very rich,' Dr.Bhattacharya avers.

Employment Situation

Out of a total population of 160 million, the total number of employed increased to 60.8 million by 2016-17. But the total incremental employment remained less than the number of people entering the labor force between 2010 and 2016. More importantly, agriculture continues to be the single largest employing sector (about 41% of the total employed population in 2016), notwithstanding its diminishing share in GDP (less than 15% in 2016), Dr.Bhattacharya says.

Further, the manufacturing sector shows a stagnating, if not declining, employment situation. If in 2013, the manufacturing sector had 9.5 million jobs, in 2016-17 the figure was 8.8 million. Manufacturing's share in total employment also experienced a decline from 16.4% (2013) to 14.5% (2016-17). This is surprising in the backdrop of an increasing share of manufacturing in the GDP.

'But the service sector is emerging as the foremost important sector for employment generation – both in absolute and relative terms,' Dr.Bhattacharya points out.

'And a large part of these incremental jobs are located in the informal sector where wages are low (often based on self-exploitation driven self-employment) and working conditions are poor,' he adds.

Youth Unemployment

The employment situation among the youth is 'perverse', the economist says. In 2016-17, about 10.6% of the youth (between 15 and 29 years) were unemployed. The comparable figure in 2010 was 7.4 per cent.

'There had been an upward trend in youth unemployment between 2010 and 2016-17. The rate was significantly higher than the national average unemployment figure,' Dr.Bhattacharya points out.

Wages

An analysis of average real monthly income/wage (adjusted for 2016-17 CPI) shows that between 2013 to 2015-16, the largest drop was in the urban areas (-6.8%), where women experienced much more loss of income (- 11.0%) than males (-5.4%).

Between 2015-16 and 2017-18, the negative change in real monthly income was more in the rural areas. One may suggest that this has to do with declining profitability of the crop sector, the economist says.

Health

Bangladesh is appreciated for its success in attaining Human Development goals, particularly in health and education. However, a disaggregated look at the concerned indicators by income reveals the wide variations that remain concealed in national averages.

The under-five mortality rate (deaths per 1000 live births) between 2011 and 2014 has declined nationally – from 53 to 46. This decline is seen in all five wealth status groups. But the relatively well-off families are improving at a faster rate, indicating health-related inequality. A similar trend may be observed in the case of neonatal mortality (deaths per 1000 live births). The national average declined during 2011- 14, from 32 to 28.But poorer families are losing relatively more new born children than the wealthier families as the country moves forward.

The population of births attended by skilled health personnel has increased nationally during 2011-14 (from 28.6% to 37.6%). Nonetheless, the population of births attended by skilled health personnel is around five times higher among richest population (70.2%, 2014) than among the poorest population (14.9%, 2014).

Investment Behavior

Private sector investment as a share of GDP is stagnating around 23% in recent years. It is not that investible resources are not available. The money is siphoned off. In 2010-11, US$ 2,750 million was siphoned off from the capital market.

The total amount of nonperforming loans reached a staggering US$ 10,764 million in June 2018, which is about 4% of GDP. Another 4% of GDP, estimated to be about US$ 11,000 million in 2018 or more has been illicitly flowing out of the country annually.
Source: https://menafn.com

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