Projections are not unrealistic, but conditional

Bloomberg Intelligence has followed the standard growth equation commonly used in long-term growth projections. The projections are based on the assumed trajectory of growth in the labour force, capital accumulation and technological progress. Growth is projected to hover around 5% in 2053 after peaking to 6.5% level in the mid-2030s. I do not see anything unreasonable here. When growth in the working population will stall, the room will be still there to enhance labour supply with increased female participation. The female participation in the total workforce is still low at 36%, which is 80% for males. So, there is scope for harvesting gender dividend when demographic dividend dwindles.

Another growth driver, as identified in the Bloomberg Intelligence research, is capital. It is projected that investment growth will stay above 8% level in the next two decades before slowing down to 7% level in 2040s.

Productivity gains are projected to rise steadily through 2053. Total factor productivity, which was in the negative territory until 2015, has been on the rise and projected to grow in next decades on the back of higher skill training and advancement in technologies.

There is nothing to disagree on what will happen in the economy if capital inflows are there and total factor productivity continues to grow. Since 60% of the growth comes from capital, there are reasons to pin hopes on the planned 100 economic zones and trade and cooperation agreements being discussed with India and some other countries, which will provide us with greater international openness. 

But one thing they have missed is the need for improving efficiency in capital allocation to make best use of the greater access to capital. Since the young population is still growing, savings should increase accordingly. Here the efficiency of financial intermediation is critical. But our financial sector is distressed with lots of weakness. They (the research) have not said anything about it. They have made the projection that capital will be flowing at 8% plus rate and the economy will be growing at 6.5% rate year after year assuming that all is going well in the financial sector. Isn't it somewhat a heroic assumption?

They have given inadequate attention to risks other than that from climate change and technology. They have projected deeper internet penetration, which alone cannot help if industries, services, and markets do not see much progress in the use of digital technologies.

Job loss from automation has been apprehended here. But recent global research, including the one by The Economist, does not find enough evidence of job cuts from artificial intelligence or the 4th industrial revolution. What they find is a change in the nature of jobs for humans, not the number of jobs. Though job cuts have been reported in our garment sector, how much of it was because of automation is yet to be known.

I feel the middle-income trap is a risk as big as climate change. Countries like Malaysia are still struggling to come out of the trap. Sri Lanka has reverted from the upper middle-income category. We need to have greater efficiency in financial intermediation, sustained macroeconomic stability and structural reforms to avoid middle-income trap.

The feasibility of Bloomberg Intelligence's projections are conditional on these factors.

Zahid Hussain is the former Lead Economist, World Bank Dhaka office