A trillion-dollar ambition needs more than GDP growth

Illustration: TBS

The government wants Bangladesh to become a trillion-dollar economy by 2034. Starting from about $462 billion in FY2025, reaching that target would require roughly 9% annual growth in dollar terms, with investment rising from about 27% of GDP to 40%.

The target is demanding, but achieving it is not the only test.

GDP records the value of goods and services produced and purchased. It does not show whether people are better off. The deeper question, therefore, is what kind of economy will generate those dollars—and whether each taka invested will create productive capacity, better jobs and greater well-being.

Bangladesh needs growth. A larger economy can generate more employment, raise incomes and increase government revenue. But a trillion-dollar economy can be built in different ways. A significant share of spending that raises GDP in Bangladesh is defensive or compensatory: it offsets weaknesses in public systems rather than creating new well-being. GDP can therefore rise with little or no net improvement in people's lives.

Paying for public-sector failures

Economist Kaushik Basu, co-chair of a United Nations expert group on measuring progress beyond GDP, offers a simple illustration.

When families pay for private guards because law and order is weak, the guards' wages count towards GDP. But families end up no better off than they would be if the streets were safe; they are simply paying for security that the state should already provide. GDP rises, but well-being does not.

To address such limitations, the group's report, "Counting What Counts", proposes a short "dashboard" of key indicators covering human well-being, equity and environmental sustainability alongside GDP. The aim is not to discard GDP but to provide a more complete picture of a country's progress.

When households pay twice

In Bangladesh, households and businesses often pay twice for essential services: once through taxes and again privately when public systems fall short.

In Dhaka, the pattern is familiar. Apartment buildings hire security guards, while households buy generators, IPS units and batteries to cope with power outages. These purchases generate income and contribute to GDP. The same pattern appears in water supply, air quality, health care and education.

Consider drinking water. According to the WHO-UNICEF Joint Monitoring Programme, about 99% of Bangladeshis have access to a drinking-water source, but only around 59% have access to safely managed drinking water—meaning water that is free from contamination, available when needed and accessible on premises. The main barrier is therefore water quality, not access. Many households must boil water, use filters or buy it in jars and bottles.

GDP counts this spending as economic activity. But much of it is defensive: households are paying for water that a reliable public system should provide at a fraction of the cost.

Air pollution presents a similar problem. Dhaka is regularly ranked among the world's most polluted cities. The World Bank estimated that air pollution caused roughly 78,000 to 88,000 deaths in Bangladesh in 2019 and imposed economic losses equivalent to about 4% of GDP.

GDP does not subtract these losses. It does, however, record spending on masks, air purifiers, inhalers, doctors' fees and hospital beds that families purchase in response. Much of this spending is compensatory: it offsets harm that should have been prevented. GDP can therefore rise even as air quality deteriorates and people's well-being declines.

Health care follows the same pattern. According to the national health accounts, households pay about 70% of health expenditure out of pocket, while public health spending remains below 1% of GDP. Private hospital bills and medicine purchases count towards GDP. 

No one would deny that a sick child needs medicine. But when families must finance so much of their own health care—often through self-medication—GDP may overstate prosperity, because some of this spending reflects illness and inadequate financial protection rather than an improvement in well-being.

Education presents a similar pattern. Public spending on education is only about 2% of GDP, and parents fill the gap through coaching centres and private tutors. A student who needs tutoring to learn what school should have taught is not necessarily learning more than one who learns the same material in class.

None of this is fake GDP. Guards have jobs, pharmacists earn incomes, and tutors provide services. Nor is all private spending defensive. Health care, education and water treatment can also build human capital and boost productivity. 

The issue is that a significant share of this spending would be unnecessary—or much cheaper—if public systems functioned properly. That share represents the cost of public-sector failures, which GDP can record as economic growth.

Businesses face the same problem. When a factory purchases a generator, GDP records the associated economic activity as investment. The generator keeps production running, but it is also a defensive investment: capital spent to compensate for unreliable electricity rather than to expand productive capacity. 

A rising investment share of GDP may therefore partly reflect spending on backup equipment rather than the creation of new productive capacity. Add logistics delays and compliance costs, and an economy may continue growing while becoming less competitive globally.

The hidden costs of GDP growth 

GDP captures some of the economic losses caused by system failures. A power outage can reduce production, and illness can keep workers off the job. But GDP also records the market activity generated by responses to those problems: generators, bottled water, private security, medicines and medical treatment. GDP counts the spending but does not subtract the underlying damage or ask whether the spending was necessary in the first place.

Imagine a country with reliable electricity, safe water and secure streets. Firms could produce more while households spent less on generators, bottled water and private security. GDP might rise only modestly because lower defensive spending partly offsets higher output—even though the gains in well-being could be substantial.

The burden is also unequal. Families who can afford guards, water filters and private hospitals can protect themselves, while poorer households have fewer options. GDP also does not show what growth consumes. It counts the bricks produced from farmland stripped of topsoil and the fish caught from a shrinking wetland, but does not subtract the loss of soil, wetlands or groundwater that future generations will need. Growth that depletes natural assets is counted as income.

More investment or better investment?

The trillion-dollar ambition faces a second test beyond whether spending adds to well-being: investment efficiency. Using a commonly cited incremental capital-output ratio (ICOR) of about 4.5, sustaining real growth of 8.5% would require investment equivalent to roughly 38–40% of GDP, compared with around 27%–28% today.

This is a rule of thumb, not a mechanical law. But project delays, cost overruns, idle plants and unreliable infrastructure all increase the amount of investment required to generate each additional taka of output.

The weaker public systems are, the more households and firms must spend to work around them—and the less each taka invested contributes to productive capacity and well-being.

Human capital belongs in the same discussion. A graduate who cannot find work that uses her education represents a loss to her family and the country. The degree may count as an educational achievement, but the economy gets less out of it than it should.

The trillion-dollar target is also measured in US dollars, so inflation and movements in the taka's exchange rate can change the total without adding a machine, a skill, a job or a cleaner street.

Measure what GDP misses

Bangladesh does not need a new headline index. It needs a short public dashboard alongside GDP, built around three questions.

The boundary between defensive and productive spending is not always clear. Is tutoring a cost or an investment? Is a generator wasteful or essential? No measure will be perfect. But even a rough estimate of defensive spending is better than assuming that every taka spent contributes equally to well-being.

Are essential services working? Track household spending on private substitutes for public services—starting with security, backup power and water treatment—as a share of consumption. Report coaching and out-of-pocket health spending separately, alongside power reliability, access to safely managed drinking water, air quality and learning outcomes.

Are workers becoming more productive? Track GDP per worker by sector, employment rates by education level and the share of graduates in jobs that use their skills.

Is investment delivering, and is growth sustainable? Track project completion rates, cost overruns, capacity utilisation and the investment required to generate additional output, alongside the depletion of soil, groundwater and wetlands.

The Bangladesh Bureau of Statistics could compile these measures, the Planning Commission could set targets for 2034, and the national budget could report them alongside GDP growth.

The policy lesson is straightforward. Reliable power, safe streets, clean water, breathable air, functioning clinics and good schools are not luxuries to be provided after growth. They are part of the growth strategy itself. They allow households and firms to spend more on food, education, homes and businesses—and less on coping with weak public services.

Imagine two different versions of Bangladesh in 2034, each with a $1 trillion economy. In one, the lights stay on, tap water is safe, the air is breathable, health care is affordable and children learn at school. In the other, GDP is the same, but households and firms spend heavily coping with unreliable power, unsafe water, poor air and weak public services.

GDP cannot tell these two versions of Bangladesh apart. A broader dashboard can. Bangladesh does not need to reject GDP. It needs to recognise that GDP can rise with little or no net improvement in well-being and to measure what matters alongside it.

Sketch: TBS

Dr Golam Rasul is a Professor in the Department of Economics at the International University of Business Agriculture and Technology (IUBAT), Dhaka.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.