For
nearly three decades now, the economy of Bangladesh
has been growing at slightly more than 4 per cent,
and per capita income growth even accelerated in the
1990s compared to the previous decades. In the 1980s,
per capita GDP had grown slowly at the rate of about
1.6 per cent per annum. In the first half of the 1990s,
the growth rate accelerated to 2.4 per cent and further
to 3.6 per cent in the second half of the decade.
Of
course this increase in the per capita growth was
mainly because of the demographic transition involving
declines in rates of population growth (from 2.1 per
cent in 1990 to only 1.6 per cent in 2000), since
there was no apparent break in the trend rate of growth
of around 4 per cent over the entire period. However,
there was clearly greater macroeconomic stability
in terms of reduced rates of inflation (from an average
of 9.9. per cent per annum in the early 1980s to an
average of 5.6 per cent per annum by the end of the
1990s).
However, it is notable that this aggregate economic
expansion has had less apparent direct impact on poverty
reduction. It is certainly the case that the long-term
trends in poverty show notable progress since Independence,
from 71 per cent in 1973-74 to around 45 per cent
in 2000.
Chart
1 >> Click
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Chart 1 provides estimates of poverty
according to two different methods: in terms of a
poverty line derived from the cost of basic needs,
and in terms of direct calorie intake. While some
reduction in the incidence of poverty is evident,
this is actually less rapid than occurred during the
1980s. Clearly, the reduction in poverty has not been
commensurate with the expectations generated by the
macroeconomic pattern of relatively stable and non-inflationary
growth.
Some of the reason for this is probably the substantial
increase in inequality over this period, as evident
from Chart 2. The main source of increasing inequality
was the increasingly unequal distribution of both
non-farm income and remittance income.
Chart
2 >> Click
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The outward-looking macroeconomic policy pursued by
Bangladesh in the recent past did succeed in stimulating
some parts of the economy, especially readymade garments
and fisheries which were the most rapidly growing
activities in the 1990s. But these activities still
have a relatively low weight in the economy, and most
(at least two-thirds) of the incremental growth in
the 1990s originated from the non-tradable sectors
- mainly, services, construction and small-scale industry.
The demand stimulus for this came from three major
sources - the increase in crop production in the late
1980s, accelerated flow of workers' remittance from
abroad and incomes generated by the readymade garments
industry.
However, these sectoral contributions of changing
GDP were not exactly matched by changes in employment
patterns. Chart 3 show the extent of growth of labour
force in different sectors over the two halves of
the decade of the 1990s. The most rapid growth has
been in financial services, but these still constitute
a very small part of total employment. Manufacturing
employment has grown only marginally, after falling
in the previous decade. While the new export sector
of ready made garments has provided an important source
of new employment (especially for women) total employment
in aggregate manufacturing has actually declined,
in both relative and absolute terms. There has been
significant de-industrialisation, particularly in
the traditional sectors, which have suffered from
import penetration.
However, agriculture has shown substantial increase
in employment generation to around 4 per cent per
annum in the second half of the decade, reflecting
the impact of various policy measure offering more
incentives to cultivators from the mid-1980s onwards.
While construction increased its share of GDP rapidly,
the rate of employment generation decelerated in this
sector. Other services sectors also showed decelerating
employment growth in the second half of the 1990s.
Chart
3 >> Click
to Enlarge
In the early 1990s there was a marked improvement
in the government's budgetary position along with
an equally marked increase in the domestic saving
rate. However, the increase in the saving rate was
not matched by a commensurate response from private
investment, at least in the early 1990s. However,
in the second half of the 1990s, while public investment
rates remained broadly the same, private investment
increased causing the aggregate rate to increase to
more than 21 per cent.
The sectoral allocation pattern of development spending
has undergone some significant changes in the last
two decades, reflecting the changing role of the government
under the economic reforms. Allocations have fallen
appreciably for a number of directly productive sectors
- most notably, manufacturing industry, water resources,
and energy, and agriculture, and increased for transport
and communication, rural development, education and
health.
Open unemployment rose risen from 1.8 per cent of
the labour force to as much as 4.9 per cent, and was
as high for women as for men, while underemployment
in 2000 was estimated to be very high at around 31
per cent. What is also of concern is the dramatic
increase in the ratio of self-employed to total workers,
as indicated in Chart 4. In general the shift to self-employment
in non-agriculture tends to be less rewarding in income
terms for the poor, than the shift to regular work.
However, there has been only a very slight, almost
negligible increase in the share of regular employment.
So it is apparent that one crucial link to ensure
more rapid poverty reduction - the generation of productive
employment - has simply not been operating in a way
that would show more effective results. rather, employment
elasticities of output growth have been low or falling
in most sectors, and the persistence of large-scale
underemployment implies the continued proliferation
of low productivity jobs, most typically now in the
services sector.
Chart
4 >> Click
to Enlarge
There is a common perception that the high presence
of micro-credit delivery systems in Bangladesh has
operated to provide a cushion for poor households
in case of shocks such as crop failures, floods and
other natural disasters, etc. It has also helped to
improve the relative position of women. However, the
basic features of micro-credit (short-term, relatively
small amounts, groups lending pressure for prompt
repayment) mean that it has not contributed much to
asset creation among the poor, or to sustained employment
generation.
In fact, the poverty reduction that has occurred may
be related more to other forms of public expenditure.
The expansion of public transport infrastructure,
especially roads networks in the 1980s, may have contributed
to subsequent rural development which in turn assisted
some of the reduction of poverty in that later period.
However, trade liberalisation had the counter effect
of reducing the viability of many small producers,
so the net effect of all the policy changes over the
period is not clear. It is likely that some of the
effects of openness were positive (as in the garments
industry) others were adverse for livelihood and therefore
poverty, and these were to some extent mitigated by
the spread of public transport networks and the availability
of micro-credit.
