Rebased GDP signals structural transformation

The rebasing of the GDP estimate by the Bangladesh Bureau of Statistics (BBS) is a regular periodic exercise. The latest GDP base year has been updated to FY16 from FY06.

This current exercise is a welcome move for our statistical development, particularly for the national income, in general for the statistical ecosystem.

This is the fifth rebasing in the history of our national accounts, which has been done after one decade. It was a much welcome move.

The new estimate shows that the economy grew both in current prices and constant prices in FY16 – as well as in dollar terms.

However, it should be made clear that we have not been richer. It is just a much more accurate estimate of reality.

First and foremost, the economy has undergone structural changes over the years. New economic activities may emerge. Some activities may die down. The relevant importance of the activities or sectors may change within the overall economy as a result. Rebasing the GDP is important to reflect the change in activities.

The second part of it, the price of those activities or prices of the outputs of the sectors may change over time. We also need to capture the effects of changes in the prices of the various kinds of outputs.

This GDP rebasing has essentially done that by looking at the price changes between FY06 and FY16, as well as the changes in the composition of activities in the Bangladesh economy.

If we do not capture this, we get distorted estimates about the GDP growth rate, inflation, savings, investment rate and, subsequently, per capita income, poverty, inequality and employment generation.

When we see new estimates and new absolute numbers, for example, the total size of the GDP and per capita income, are important.

But relative share is more important. The relative share of savings, investment to the GDP and the shares of agriculture, industry and services to the GDP are also important. We have to look at both absolute numbers and relative numbers.

The absolute value of the GDP would definitely increase through the rebasing of GDP because of the better and wider coverage, more up-to-date services and also purposeful inclusion of some new activities.

The BBS has done a new survey for manufacturing enterprises and construction sub-sectors in the industry sector. Value addition of mobile banking, agent banking, Internet services, cable television, private helicopter services and some other sub-sectors have come under the coverage owing to the new survey.

They also updated data regarding private transport and the real estate sector.

The positive message from the rebasing is that we have a bigger economy worth Tk34.8 trillion, about 15.71% larger than the earlier estimate with the previous base. Per capita income also reached $2,554, which is $328 higher than the previous estimate.

But since we do not have more than eight years of any household income expenditure survey to relate the aggregate income to the income distribution, we are unable to find how the income has been distributed among the people. All intelligence guesses tell us the new figure will imply higher inequality.

On the other hand, per capita income reached $2,554 in the fiscal 2020-21, according to the new base, which was $2,227 according to the 2005-06 base. The figure increased by $327, which indicates that per capita income would increase by about Tk29,430, considering the current exchange rate.

Given the current price hike, consumers will contest its welfare effect. The higher income in terms of money would not affect positively in the lifestyle of people owing to the high inflation rate.

Considering the new estimate, Bangladesh seems to have achieved lower middle-income country status prior to 2015. In that sense, we would have met the criteria to graduate from the least developed countries much before 2012. And, Bangladesh would have graduated by now if the GDP had been estimated properly earlier.

The new estimation has some other implications. We would be able to borrow from the international financial institutions by a higher amount. For example, we would be able to attain the status of a blended borrower country of the IDA of the World Bank much before.

On the other hand, the current threshold of the upper-middle-income country will be achieved earlier than expected. This will imply that the preferences we are asking at the transition period of graduating from the LDCs would be subject to much more resistance.

According to the new estimation, the growth rate reduced moderately to 3.45% in FY20, which was 3.51% in the previous estimate. Growth rate in FY21 also reduced to 5.43% from the previous estimation, 5.47%. I think the BBS estimated the figure of the last fiscal year without assessing the data of the last quarter of the fiscal year. The estimation is far above, considering other proxy variables.

The rate of investment as a percentage of GDP marginally increased, but the estimate did not provide the breakdown of private and public investments. I suspect that the incremental amount of the investment came from the public sector. Private investment to GDP ratio remained stagnant or reduced. The productivity of the investment in that case reduced.

The sectoral composition of GDP is also more interesting as it shows that we are more industrialised than earlier we thought.

Domestic savings as a percentage of GDP dropped to 26.54% in FY21 from 27.27% in FY16 following the rebasing of GDP, indicating that households are now bound to spend a larger fraction of their income to maintain their living standard. This will give rise to poverty and inequality.

The industry share in GDP went up to 35.1% from 32.5% in FY16. We are less agricultural dependent. The share of the sector came down to 12.2% in the last fiscal year from 14.1% in FY16.

The share of the service sector also reduced marginally by 1 percentage point and stood at 52.4%.

We have seen that the structural transformation is taking place in a positive trend. This is showing that rural non-farm activities are also increasing.

Slacks are that we have no breakdown data among the sub-sectors of different sectors. We are hopeful that the share of the manufacturing sector has picked up. Within the manufacturing sub sectors, if the large scale industries grew up, not the small one, it would increase inequality.

We have found these numbers with other indicators of the economy, such as inflation, household income and expenditure. We have to conduct household income and expenditure surveys to find how the income is being distributed.

Finally, this is a good thing that happened. The BBS provided more credible data regarding the GDP in the recent past. But it is important to know the distributed impact of the growth in health and education.

We have to go for the quarterly GDP estimation for the proper and real time data. It also requires knowledge about local and regional contributions to the GDP.

The BBS also needs to conduct a labour force survey to find how income changes the shape of the labour market.

Dr Debapriya Bhattacharya is a Distinguished Fellow at Centre for Policy Dialogue (CPD)