Is a low GDP growth rate simply a number?

In its latest 'World Economic Prospect' report, the World Bank has projected that the GDP (gross domestic product) growth rate for Bangladesh for the financial year 2024-25 will be 4.1%, which was 5% during the last financial year, 2023-24.  

The Bank has downgraded its earlier GDP growth rate projection for Bangladesh from 5.7% to 4.1%. The Bangladesh economy seems to be set for the lowest economic growth since the Covid-19 pandemic. 
A few months ago, the ADB (Asian Development Bank) also downgraded its earlier projection for the GDP growth of Bangladesh, and in fact, for a few weeks, the government has done the same. The World Bank's Prospect report, however, indicated that India will enjoy a GDP growth rate of 6.7% during the fiscal year of 2024–25, while those of Pakistan and Sri Lanka would be 2.5% and 3.5%, respectively. 

The reasons for the low growth rate prospect for Bangladesh are fairly known. The mismanaged economy the country inherited; persistent double-digit inflation; weakened industrial production, including that of the export sector; reduction in private and foreign investments; energy shortages; import restrictions; and perceptions of economic and political instability in the country  all contributed to the sluggish economic growth of Bangladesh. 

One important question is, however, whether a low GDP growth rate is just a number or it has wider impacts. In fact, lower GDP growth has economic, social, and political implications. 

Firstly, sluggish growth will affect common people in three distinct ways. One, sluggish growth will fuel inflation further, adding to the persistent woes of the common people. 

The real income of people has been decreasing for the past three years. It has eroded the purchasing power of the common people. 

With reduced economic growth, people will find it even more difficult to make both ends meet. In fact, with reduced real income of more than 10%, the people of the country, 1.5 crore in absolute number, are extremely vulnerable to falling anew into the poverty trap. 

Two, slow growth will reduce the employment prospects of those in the labour market.  At present, nearly 3 crore people in the country are unemployed, and a reduction in economic growth may inflate this number. A major concern is youth unemployment, and the current youth unemployment rate is about 18%. These mean a significant portion of the population will have reduced purchasing power, resulting in lowering of their living standards. 

Second, sluggish economic growth may widen the existing disparities between the rich and the poor. This is because slow growth affects poor people more than the rich, and the rich have better cushions to protect their incomes, consumption, and living standards in the face of lower economic growth. 

Sluggish economic growth may widen the existing disparities between the rich and the poor. This is because slow growth affects poor people more than the rich, and the rich have better cushions to protect their incomes, consumption, and living standards in the face of lower economic growth.

An analysis of overall data shows that while the bottom 40% of the population in Bangladesh receives 13% of the country's GDP, the top 10% of the population enjoys 38% of it. In terms of consumption, the monthly per capita expenditures of the bottom decile of the households are Tk2,122, and the comparable figure for the top 10% of the households is Tk9,137. Sluggish economic growth may widen these gaps. 

Third, reduced investments are an outcome of slow economic growth, but at the same time, it is a cause of sluggish GDP. A slower economic growth will dampen private sector investments and also attract a lesser amount of foreign direct investments (FDIs). 

The private sector credit fell by 8% in October last year. The FDI went down from $2.1 billion in 2023-24 to $1.5 billion during the current financial year. The letter of credit opening for capital machinery imports dipped by 27%, and imports of intermediate goods, critical for production, also decreased by 16%. All these mean that a reduced growth rate will adversely impact the industrial production of the country. 

Fourth, slow economic growth will also depress resource mobilisation efforts of the government. A lower resource base of the government will impact both economic and human development in three ways. 

One, because of sluggish economic activities, both the direct and indirect tax nets will shrink as people's income and consumption levels will be reduced. 

Two, with a depressed economic growth, the resource base needed for repayment of public debts and debt servicing will shrink.  

At the end of June 2024, the total debt burden—both domestic and external—of Bangladesh was Tk18 thousand billion. During the 2023-24 financial year, the Bangladesh government has spent Tk1,000 billion for debt repayment, which amounts to one-sixth of the national budget. 

During the last financial year, our debt-servicing ratio was 17%. Foreign loans have another dimension. Interests on foreign loans have to be paid in foreign currencies. It leads to depletion of foreign exchange reserves. All these require an accelerated economic growth rate, not a decelerated one. 

Three, with a resource base resulting from lower economic growth, there will be fewer resources available for such social sectors as health, education, nutrition, etc.  Similarly, reduced resources will force the government to cut expenditures on climate change and environmental issues, as well as gender equality concerns and issues of women's empowerment. All these will adversely affect human development of Bangladesh. 

Four, the expanded impacts of sluggish growth go beyond economic and human development concerns. Rising unemployment and inequalities from reduced economic growth create widespread dissatisfactions in the society. Reduced expenditures in such social services such as health, education, and nutrition affect the common people significantly, which increases social tensions. 

Reduced resources from a decelerated economic growth sometimes force the government to neglect such concerns as climate change and gender inequality—the necessary as well as important development considerations. 

A lower economic growth number is thus not simply a number but with far-reaching economic, social, and human development implications. The projected GDP growth rate, which has been downgraded by different entities, should be seriously taken into account by all concerned, as it has significant consequences. 

Dr Selim Jahan is the Former Director of the Human Development Report Office and Poverty Division at the United Nations Development Programme, New York, US.