Dented but still a minor miracle: A comment on the White Paper

The committee members submit the White Paper on Bangladesh's economy to Chief Adviser Dr Muhammad Yunus at his office Photo: Courtesy

The Bangladesh White Paper is a sobering read. It suggests a starkly different reality to the Bangladesh miracle – one where economic progress has been systematically overstated, corruption embedded, and financial vulnerabilities ignored. Policymakers are encouraged to take a collective deep breath to face the inconvenient truth of the miracle that never was. Is this a fair assessment of the country's last decades of economic and development history? Does it serve? We argue that there is much truth in its findings, but that it talks progress down too much to be helpful to Bangladesh's recovery. And importantly, it hands a silver plate full of excuses to the next political government. 

While accepting that progress in human development has been genuine, the White Paper describes an economy at the mercy of oligarchs who have colluded with politicians and civil servants to steal from the state; moulded the policy environment for their benefit; blocked progressive reforms; and stolen from the banking system. At the heart of the White Paper's argument is the claim that Bangladesh's GDP growth has been exaggerated while inflation has been understated. The government, as the sole provider of data for nearly a third of GDP, had both the means and the motive to inflate growth figures. 

The assessment

The White Paper presents an alternative model – using nightlight intensity as a proxy of economic activity  – which suggests that the rate of growth may have  been declining since 2000 and especially since 2010. Careful not to forecast what this means for the actual level of GDP, which it rightly points out should be left to the national accountants. Nevertheless, using the growth predicted by nightlights from 1995 onward, would imply that Bangladesh's current GDP would be about a third smaller than officially reported. The nation would remain a middle-income country, but with per capita GDP closer to $1,800 rather than the current IMF estimate of $2,625. It would imply a growth rate since 1995 of 3.0% in per capita GDP in real terms, rather than 4.4%, or a downgrade of long-term economic performance from miracle to merely strong performer. Still outperforming the average for lower middle-income countries in this period. It would put GDP per capita somewhat behind India, but still well above Pakistan, Myanmar or Nepal.

Infograph: TBS

Nevertheless, this downward revision of GDP would have profound implications for how we view the economy. It would push government debt from 39% to 56% of GDP, greatly reducing the headroom for further borrowing. The fiscal deficit, already a concern, would expand from 4.6% to 6.8% underlining the need for urgent fiscal reform. Interest payments on public debt already exceed 20% of government revenues indicating the early stages of a debt spiral unless the deficit can be substantially reduced or debt rescheduled. 

How to respond

The good news is that Bangladesh can correct course, but policymakers must make tax reform their top priority. The country's tax-to-GDP ratio is woefully low by international standards. The dominance of indirect taxation, such as VAT, disproportionately burdens the poor, while direct taxation remains riddled with exemptions that favour economic elites. Reforms must focus on expanding the income and corporate tax base, curbing exemptions, and improving compliance through automation and inter-agency data sharing. Corruption-ridden sectors like energy, finance, and real estate must be brought under proper tax scrutiny, not just for revenue generation but also to break the grip of oligarchic interests on economic policy.

There is more it can do. Beyond taxation, the government must be careful not to spread itself too thinly and limit itself to critical reforms that it can convincingly deliver. It must act decisively to improve the business environment, clean up public procurement, and reform the banking sector. The investment climate remains skewed in favour of powerful business interests, while other firms struggle under excessive bureaucracy and an inefficient regulatory framework. Because the investment environment is never "finished," Bangladesh needs a permanent process where the needs of productive firms can be communicated to the state, prioritised, and solutions iterated through multiple line ministries. The public procurement system is routinely vulnerable to fraud and delays but could be substantially mitigated by the strengthening of project design, cost-estimation, oversight and the sanctioning of corrupt officials. Meanwhile, the banking sector, plagued by non-performing loans and elite-driven fraud, requires comprehensive restructuring to restore confidence and stability.

Serving the next political government?

Even if there is virtue in calling out mismanagement and plausible manipulation of data, we know of no other country that would take the nightlights model at face value as a correct data point. The language used in the White Paper also creates a suggestion that all data has been manipulated, and that all mismanagement and corruption is a recent phenomenon. Yet, for example, Transparency International scored Bangladesh as having the same global ranking in perceptions of corruption in 2010 as in 2023. Bangladesh's challenges with economic governance and government performance are by no means new. 

Moreover, the eagerness of the White Paper to paint the worst picture of the current state also serves an unfortunate purpose. By making the economy and institutions look so bad, any new political government can use the legacy as a great excuse for limited progress in the near future. Moreover, painting such a negative picture will make progress appear easy – by overstating the downgrade, any small future improvement will appear really large. And blaming one group of recent cronies as the culprits for decades of weakness in economic governance creates new scope for laziness in real reforms. In short, by finger pointing and downplaying economic progress, the White Paper gives any new government an easy ride and the perfect excuse for avoiding radical improvement in economic governance. Though it appears radical, the White Paper paves the way for an all too familiar business-as-usual with impunity and limited accountability.

Sketch: TBS

Stefan Dercon is Professor of Economic Policy at the Blavatnik School of Government.

Sketch: TBS

Nick Lea is an Economic Advisor at the Economic Policy Network.