How could productivity of capital drop 56% in a year?

How much money is required to invest in order to add a product worth TK1 to an economy?

The term is globally known as the Incremental Capital Output Ratio (Icor), which helps to measure the productivity and efficiency of the capital investment.

In Bangladesh the Icor increased sharply in the last fiscal year to 6.06, which was only 3.87 in the fiscal year 2018-19.

The rise in the Icor implies that about Tk6.06 will require instead of Tk3.87 to produce an additional product worth Tk1.

What the massive transformation has Bangladesh's economy gone through in just one fiscal which leads to increase 56.59 percent of higher capital investment to produce additional output?

How rapidly could reduce the productivity of capital for a country?

The Centre for Policy Dialogue (CPD) has denied the reality of both the 5.24 percent of growth of the Gross Domestic Product (GDP) of Bangladesh and 10.62 percent rise in investment in the last fiscal.

The think tank has said that the level of investment in both private and public sectors has dropped significantly in the last fiscal year compared to the fiscal 2018-19.

The BBS said in the growth report, Tk8,87,988 crore was invested in the last fiscal year which was Tk8,02,669.5 crore in the fiscal 2018-19.

Where did the additional investment worth Tk85,318.5 crore come from in the last fiscal year?

The answer from BBS officials is not clear. It is not also clear from separate analysis of private and public sectors investment data.

As the Annual Development Programme (ADP) expenditure accounts for more than 82 percent of the public sector spending in Bangladesh, one can find a clear picture of the government investment.

BBS said that the public sector investment stood at Tk2,27,151 crore in the last fiscal compared to Tk2,04,087 crore in the previous fiscal.

The government invested additional Tk 23,064 crore in the fiscal when the ADP implementation dropped by Tk5,329 crore. Then, where did the additional TK230,64 crore come from and where was it spent?

Ziauddin Ahmed, director (GDP) for the National Accounting Wing of BBS said recently the BBS compiled the data before the ADP was trimmed by the National Economic council (NEC).

BBS projected investment worth about 31.75 percent of the GDP for the last year which is ever highest in the history of Bangladesh. In their count, private sector investment reached to ever 23.63 percent of the GDP which conflicts with the finance ministry figure. The ministry has projected only 12.7 percent of the GDP for the fiscal in revised budget.

The CPD said at a virtual press briefing on Sunday, only 76.8% of original ADP could be spent in the last fiscal. Private sector credit growth declined to 8.6 percent– the lowest in the decade. Import of capital machinery declined by 33.8 percent.

Rural credit up to May dropped by 12 percent and net FDI declined by 42.5 percent.

CPD distinguished fellow Prof Mustafizaur Rahman said the economy was facing difficulties even before impact of Covid-19 struck Bangladesh in March. There is no reason behind the investment rate to increase above 10 percent instead of sudden drop.

Dr Fahmida Khatun told The Business Standard a rise in the Icor reflects the lower productivity of capital. As a country transformed towards the capital intensity, the Icor started to increase. It is not realistic for a country to increase Icor by 56.59 percent in a year, she added.