'IMF projects business as usual; government projects a dream'

In its Five-Year Strategic Framework, the government projects growth rising from 6.5% this year to 8.5% by 2031. The IMF's forecast, released yesterday, sees 3.2% this year, and still only around 3% in 2031.Why is the gap so vast?

There are two explanations: technical and political. 

The technical one is that the IMF's are baseline projections — they show where the economy goes if it simply continues as it is, with no change in institutions or macroeconomic conditions; their message is that it will get worse before it gets better. 

The government's figures rest on the strategy paper's three-R plan — restoration, recovery and resilience — and assume two things: that the reforms it promises are actually implemented, and that they deliver the intended results. 

On those assumptions, growth climbs from a baseline of about 4.6% toward 8.5%. 

So the two are not comparable, because the IMF has not published its high-case, reform-based scenario here. Its earlier Article IV projections, when the programme was active, were far better, because they counted the impact of reform. This one assumes no reform at all.

Is it realistic to jump from 4.6% to 6.5% in a single year?

How is that possible? We are already in October. Reform is not timeless — it takes time to do the work, and more time for the results to show. This is where the political dimension comes in. 

A government document cannot show only cold, reality-based projections; it has to show a dream as well, and holding up the dream of high growth is part of what I would call our development politics. So the strategy paper's numbers blend a little reality with a good deal of aspiration.

The government is eight months old. How much of that reform is actually visible?

It would be wrong to say nothing has been done, but equally far from the truth to say much has. 

In banking, some work has gone into standing up the consolidated bank, and that is the one big step toward resolving distressed institutions. But most of the central bank's circulars — on rescheduling, on emergency liquidity — are not reforms; they are band-aids that cover the bleeding. 

The Chattogram port agreement with DP World has been signed but not implemented; the economic partnership agreements with South Korea, and earlier with Japan, have not been ratified in parliament. 

On the big structural gaps, I am not aware of any real steps.

So is this a failure of political will?

Will is necessary, but it is not enough; what matters is delivery. Take the port: The will was there — the agreement was signed — and the interim government, too, showed no shortage of will, with more than a hundred ordinances. 

The ultimate test of reform is whether the port's efficiency actually rises, which means implementing that agreement and managing the resistance it provokes — the same resistance we saw against NBR reform. 

Every reform creates winners and losers, so those who profited from the status quo push back. If you cannot manage that political economy, then will, however genuine, does not translate to delivery.

Governance helps explain why Bangladesh is performing worse than comparable countries despite the various crises unfolding around the world. After all, those countries are operating in the same global environment. They are facing many of the same external shocks, yet their economic performance is better than ours.

The IMF sees inflation near 10.9% alongside this weak growth. Are we drifting toward stagflation?

We have already arrived — and not this year. We have been living in a stagflationary economy for the last few years. In a developing-country context, stagflation means growth weakening while inflation stays high or rises, and that is exactly the path we have been on.

With growth this slow, what happens to jobs and to poverty?

If there is no broad change in our economic management, I see no way out, especially with the global shocks — oil above $100, gas two or three times higher, shipping routes disrupted. 

A recent World Bank report found around six crore people at risk of slipping below the poverty line, and both the poverty rate and the number of poor have already risen. That vulnerable population sits only just above the line, so it would not take a large shock to push the numbers up — a weak economy and stubborn inflation would be enough.

In one word, what has to change?

Governance. 

Douglass North, the Nobel laureate in institutional economics, put it best. Think of the economy as a game. The players are the teams — households and firms. The rules of the game are the institutions. And the referees who enforce them are the courts, the police, the administration, the regulators — they do not make the rules, they enforce them. 

How the game is actually played is governance. In our case there are deep deficits in the rules, in their enforcement, and in the players' own compliance. Until we change how we play the game, the hoped-for outcomes — more investment, export diversification, jobs, higher wages, less poverty — will not come, even if the investment climate on paper improves.

So the economy cannot be fixed before politics?

The economy's structure stands on the political structure; if the political equilibrium does not change, shifting the economic one is very hard — both in how fast the economy grows and in who enjoys the gains. 

And look at where the politics has gone. Search the term "political settlement" on Google Trends and you will see it spike after August 2024 and then fade to almost nothing. All that intense talk of a new political settlement has gone quiet — not because we achieved one, but because we did not, and perhaps we have given up hope of it.

And the dream of a trillion-dollar economy, of upper-middle-income status?

That one makes me a little uneasy. 

Remember 2015, when we entered lower-middle-income. A 2012 World Bank report had us reaching that status around 2019 or 2020, but in 2013 the national accounts were revised and nominal GDP jumped 15 percentage points overnight — nothing real had changed, only the accounting — so we "arrived" in 2015 instead. 

Now I hear the accounts may be revised again, and I can almost guarantee that per-capita income will rise another 12 to 15 percentage points once it is. With an accounting change, prosperity can arrive in your sleep.

The IMF sees India, Nepal, even Sri Lanka doing fine — only Bangladesh is stuck at the bottom. What is their secret?

Thank you for highlighting this issue. I think this is the first time I have heard a journalist raise this point. The newspaper reports on the IMF's growth projections have largely overlooked the fact that Bangladesh is experiencing lower growth and higher inflation than comparable countries.

If our narrative is that the Iran war, its impact on oil and gas markets, international shipping and other external factors are solely responsible for high inflation and weak growth — and that inflation would have been lower and growth higher in their absence — then, at best, that is a half-truth, or perhaps even a quarter-truth. It is certainly not the whole truth.

If you ask me what evidence supports this argument, I would point to another set of data published recently: the World Bank's Worldwide Governance Indicators. These cover six dimensions of governance: political stability, government effectiveness, regulatory quality, the rule of law, control of corruption, and voice and accountability.

If we want to find a preliminary answer to this question, we should compare Bangladesh's performance with the average growth and inflation rates of other developing Asian economies. Such a comparison shows that Bangladesh has lower growth and higher inflation.

Now, if we compare Bangladesh's governance scores with those of these countries using the six indicators, we find that Bangladesh ranks in the bottom 20% or 25% across all six dimensions. In at least four of the six indicators, we fall within the bottom 20%.

This brings me back to my earlier point: governance helps explain why Bangladesh is performing worse than comparable countries despite the various crises unfolding around the world. After all, those countries are operating in the same global environment. They are facing many of the same external shocks, yet their economic performance is better than ours.