Asia’s “best” GDP figures do not add up

Not content with being labelled a human development star, Bangladesh followed with an altogether even more totemic crown: being labelled Asia’s fastest growing economy, after officially posting growth of over 8% in 2019, around double China’s rate last year. As a result, the International Monetary Fund (IMF) suggested Bangladesh’s GDP per capita had now overtaken the level of its giant neighbour India, around the end of last year. This came at a time when Bangladesh’s government had officially applied to the United Nations (UN) to move out of the least developed countries (LDC) status group of nations.

While this confidence bodes well, a hushed consensus in the country’s capital, Dhaka, suggests that these GDP numbers do not add up. In fact, they are most likely intentionally skewed, and thus reflect the country’s autocratic trajectory, rather than solely its growth success. Masking a repressive political environment and unchecked corruption.

“This 8% [growth rate pre-Covid], and this always upward, linear progress does not make sense, because the other numbers do not match. [T]he growth number is really a myth,” said Fahmida Khatun, executive director at the Centre for Policy Dialogue (CPD), one of Bangladesh’s leading economic think-tanks.

Since Bangladesh declared independence from Pakistan in 1971, two notable forces, amongst several, have helped it surmount chronic poverty and become a development pioneer. Exports of garments blossomed following the 1974 multi-fiber agreement, which the Global Agreement on Tariffs and Trade (GATT) used to put restrictive textile export quotas on East Asian economies, opening opportunities for market entrants like Bangladesh. This preferential access to developed markets has continued on the basis that the UN classifies the country as an LDC. This will likely end in 2024, as the country’s government has applied to the UN to be classified as a middle income country, a concrete badge of nationalist honour. This may however see a number of challenges, including the end of current tariff free exports bestowed on LDCs to aid development. This could be problematic if Bangladesh is not as rich as officially claimed.

According to the IMF, Bangladesh reported growth of 7.9% in 2018, followed by 8.2% in 2019, and had predicted even higher growth rates for 2020, before the pandemic hit. However, the IMF now still sees the country growing 3.8% in 2020, compared to China’s 1.9%. Meanwhile, India’s was seen declining by 10.3%. While its GDP per capita will decline to $1,877, and Bangladesh’s has allegedly nudged above it for the first time in at least half a century, to $1,888.

The story of Bangladesh booming has become a source of validation for Bangladesh’s current prime minister, Sheikh Hasina. Her Awami League party came into office in a landslide election in 2009. However, it has been accused of rigging two subsequent elections, in 2014 and 2018. During the course of her record long reign, Hasina’s government has been accused by Human Rights Watch, among others, of forcibly disappearing almost 600 up to July 2020.  

Economists including Ahsan Mansur, formerly with the IMF claims that “this cannot be an 8% economy [pre Covid] when imports and exports are falling and credit expansion has fallen to its lowest level in at least a decade and half.” There is “direct political  pressure [for GDP figures] to be close to [targets],” set by the government in the country’s five year economic plans.

Until about 2014-15, GDP projections from the IMF and the World Bank were significantly lower than government predictions, when, alleges Mansur and others, political pressure was applied to key figures in those multilateral agency’s Dhaka offices. So finally from fiscal year 2017-2018, “people gave up and started using government figures,” claims Mansur.

Of particular, and long running concern has been Bangladeshi banks which have issued large numbers of un-serviced loans often to powerful, politically connected individuals, who have no intention of repaying. This gave the country (pre-Covid) a very large non-performing loan (NPL) ratio of 23% for all banks, and 35% for the dominant, state owned banks. An NPL is the proportion of loans which have been classified as ceasing to be serviced because borrowers have ceased paying interest or repaying the loans. By comparison, fellow fast growing Asian economy Indonesia had in 2018 a NPL ratio of just 2.3%, according to Deloitte.

The IMF revised their NPL ratio figure upwards for Bangladesh in an internal report last year, some of which was leaked. “The IMF has come up with the number which is double the [previous] total loans because the central bank is only taking into account classified loans, but really should take into account rescheduled loans,” said Fahmida Khatun of CPD. The NPL problem, most agree, is driven by powerful, politically connected individuals securing loans and refusing repayment, with impunity and on the basis of political connections. 

According to Rashed Titumir, an economist at Dhaka University, handouts to politically-connected individuals are usually not spent productively, and instead result in large scale capital flight and inequality. This is corroborated by the Washington DC based think-tank, Global Financial Integrity, who claim billions leave in illicit flows annually. Much of this is done through what is known as mis-invoicing, on a scale far outstripping aid spending.

Many point to the case of PK Halder, a former managing director of a Dhaka bank, who, with the use of fictitious companies, secured billions of Takas, Bangladesh’s currency, worth of loans, allegedly with the help of officials in the central bank. Halder fled to Canada in January 2020, allegedly knowingly a day before authorities raided his house. Halder now lives in Montreal where, the Bangladeshi press allege, he owns a thriving real estate business.

The culture of loans being distributed on a patronage basis means there is a lack of credit for the rest of the economy. “Liquidity has become another issue because this culture of not returning loans has really had an impact on the banking sector. Credit to the private sector is going down, which corresponds with a decline in the private sector, so that confirms the impression that the private sector is not interested in investment,” said Fahmida Khatun. Limited borrowing capacity stunts private sector investment which slows the economy’s growth and productivity growth.

Indicative is the “rate of private investment to GDP [which was] stagnant [pre Covid], according to government data,” said Rashed Titumir. This has hovered around 22% of GDP since 2013-14 and is one of the key figures that has flatlined. Despite this, and despite what one would expect with a stagnation of growth in private investment, official GDP growth has seemingly [DB2] soared. Where does the stellar GDP growth come from, if not from private enterprise investing in new businesses and the like? This especially so in an environment in which private sector investment is inevitably constrained by the difficult lending environment that is caused by the “alarming” NPL ratio. 

The government is “using [the GDP] figures to justify and legitimise their political fortunes,” said Ali Riaz, from the Illinois State University. “All these numbers are produced in a manner that shows this government in a positive light, so that we forget about what other things are happening… on the economic front a lot of things are happening, the corruption, the non-performing loans, these things are being whitewashed with this overriding idea that whatever happens, we are growing, the GDP number is good. But when you look into it the GDP figure does not add up.”

Bangladesh is stymied not only by political dysfunction, but has one of the smallest states, if measured by tax to GDP ratio, the percentage of tax collected by the government relative to the size of the economy. This causes endemically weak institutions, unable to produce the checks and balances needed to regulate the forces of patronage politics on the economy. This helps to stimulate the out-sized influence politicians have relative to those who might gain accountability from them. In this light massaged GDP figures are another expedient appendage to go with massaged elections.●

Joseph Allchin is an independent journalist and the author of Many rivers, one sea: Bangladesh and the challenge of Islamist militancy (Hurst, 2019).