Debate on growth and debt relationship...

Probably, the most discussed issue in the current macroeconomics field is on the paper “Growth in a Time of Debt” written by Reinhart and Rogoff. With solid evidence, counterattack (Does high public debt consistentlystifle economic growth? A critique of Reinhart and Rogoff) by three young economists (Herndon, Ash and Pollin) from University of Massachusetts, Amherst on the data used for the paper and methodology adopted for that brought a myriad number of macroeconomists to join in the debate as well with strong philosophical backings. Recently, Reinhart and Rogoff were trying to answer back through writing in the newspaper (see below). You may find to read those worthwhile.

1. Debt, Growth and the Austerity Debate

2. Reinhart and Rogoff: Responding to Our Critics

Vocal for 'Overstated' Policies?

Dr. Zaidi Sattar, Chairman, Policy Research Instiute (PRI), writes the following article on the various forecasts on the GDP growth rate of FY13 made by various organizations. Surprisingly, Dr. Zaidi attacked those forecasts without giving any strong logic.

Link of the article.

Comment: It is surprising that after working so many years at the global lending organizations like the World Bank, which has been spreading the philosophy of attaining higher GDP growth to reduce poverty at a faster rate in developing countries, Dr. Zaidi Sattar is now questioning the use of GDP growth to represent economic progress, especially when it is more and more visible that economic policy prescribed by him and some of his colleagues (6th Five Year Plan) gives the gloomy picture of attaining the vision of Bangladeshi people to become a middle income country by 2021. It is MORE surprising, how being a Bangladeshi citizen, economist like Zaidi Sattar forgot to incorporate the hartal as another factor while forecasting GDP of Bangladesh, especially in the period before the general election! If forecasting unbelievable numbers is not the sin, then how come they expect that talking on the true scenario of GDP would not be the right approach?

On the issue of indicating GDP range, it would be worthwhile to know what Dr. Zaidi used to do a few years back when he was the World Bank economist. People at least have the right to know his previous style.  

If readers recall the last year’s GDP growth, it was 6.3%. IMF’s predictions for the current year is less than 6.0%, say 5.9%, while the corresponding figures from the World Bank and ADB are 5.8% and 5.7%, respectively.  Now, if one compares the current year’s GDP growth with the target one prescribed in 6^th Five Year Plan, that would be totally unacceptable and illogical because GDP growth rate in the current year is based on the basis of achieved GDP in the previous year. (One can’t compare the reality with dream; rather one should compare today’s reality with the one that one achieved yesterday.) So, what’re the gap between actual GDP growth in FY12 (6.3%) and the forecasts of international agencies? With IMF, the gap is only 0.4%, the respective gaps are 0.5% and 0.6%, respectively, in the case of World Bank and ADB. Where is wrong here?

There is serious lack of good arguments in this article; rather it shows the unnecessary anger on those, who portray the reality. Though showing anger is not unexpected because things are not going on according to the 6^th Five Year Plan of Bangladesh that made by a group of economist led by Dr. Zaidi.     Finally, by the name of ‘hartal’, is he trying to shed on ‘overstated’ policies that he along with his colleagues took in formulating country’s 6^th Five Year Plan? If there is any such suspicion, that won’t be surprise also!

CPD's Budget Proposals...

Centre for Policy Dialogue (CPD), like previous years, makes several proposals to the Finance Minister for his upcoming Budget FY2014 announcement.

Link for the Proposals.

All is not well !

Professor M. A. Taslim writes on the current threats to the Bangladesh economy with a focus on declining trends in imports, its relation with investment demand, and then linked up those with overall GDP growth. The relationship between governance and growth also came up in the concluding remarks.

Link of the article.

Uncertainty rules growth!

Shahidul Islam writes in the Financial Express on how uncertain economic prospect affects economic growth, mainly in the context of Bangladesh, especially for FY2013. The article rightly points out to the slowed GDP growth prospect in FY2013 based on the ongoing global and domestic economic uncertainties.

Link of the article.   

Bangladesh Development Update, WB

World Bank publishes a detailed economic update 'Bangladesh Development Update, April 2013' with recent economic and social development, development progress, and challenges to development opportunities.

Link for the Report. 

FY13 GDP Growth Debate

Last few weeks, debate on projected GDP growth rate for FY13 came into the discussion. Although in the budget FY13, based on the 6^th Five-Year Plan, the government set an ambitious target of 7.2% GDP growth, the reality was quite different from the target, mainly due to delayed recovery of global economic development.

As FY13 is coming to an end soon, predictions over GDP growth rate by various government, multilateral organizations and rating agencies clearly show that it won’t be possible to achieve target GDP growth rate of 7.2% (Figure below). Interestingly, there is a wide gap between the target and predicted GDP growth rate. The same scenario was observed in the last FY, when the target and actual GDP growth rates were 7.0% and 6.3%, respectively.  

Two basic reasons came up in almost all analyses:

1. Slowed recovery of global economies; and 2. Recent political crisis inside the country

News on various economic updates:

1. Finance Minister, BBS and BB
2. IMF 
3. World Bank 
4. ADB
5. Moody’s     

Asian Development Outlook 2013

Asian Development Bank publishes its flagship publication 'Asian Development Outlook (ADO) 2013', where the focus issue is Asia's energy challenges.

Well, there is a Bangladesh chapter too, as usual. Bangladesh Chapter of ADO clearly indicates that Bangladesh GDP growth for FY2013 will be 5.7% against the actual GDP growth of 6.3% in FY2012.

Link of the ADO.
Link for Bangladesh Chapter.

Financial crises: questions and lessons

Two leading IMF economists, Stijn Claessens and M Ayhan Kose, write on on three basic questions related to the recent financial crises: 

• What are the main factors explaining financial crises?
• What are the major types of financial crises?
• What are the real and financial sector implications of crises?

 Link of their analysis.

Five Lessons for Economists from Financial Crisis!

Olivier Blanchard, Former MIT Faculty and IMF Chief Economist, offers five lessons for economists from recent global financial crisis, as published in the Wall Street Journal.

1. Humility is in order;
2. The financial system matters a lot;
3. Interconnectedness matters;
4. We don't know if macro-prudential tools work; and
5. Central bank independence wasn't designed for what central banks are now asked to do.

Link of the report. 

Statement of IMF Mission

An IMF mission just visited Bangladesh during 20 March - 2 April, and made an statement after mission finished. Among other issues, the mission gave its opinion on the GDP growth prospect in FY2013, as follows:

"Unrest in recent months is affecting economic activity, with real GDP growth now expected to moderate to below 6 percent in fiscal year (FY) 2013 (July 2012-June 2013)."

Link of the statement.

Comparing macro variables

Comparison of economic achievements under various governments is a complicated effort. There is no direct way to measure it because of time inconsistency problem. Why it is? Say, in reality, time series variables have a trend to move upward, or downward. There is a strong possibility, in most of the cases it is the truth, the effort of governments rarely reflects the movement of variables. Lots of issues are interconnected, and unless one is not closely inclined to basic economics and econometrics knowledge, they will rarely explore such issues.

Let us know a few clarifications. First of all, for example, there are two parties, who come to the power on consecutive periods. Let’s assume that there are 3 periods, Period 1, Period 2 and Period 3 and two parties: Party A and Party B. As mentioned earlier, macro variables have a trend and move accordingly. Now, if one macro variable, say, real GDP growth, moves upward with time under three consecutive governments when two parties was in the power one after another (Table below), then it will be silly to make a statement like such: rise in real GDP growth took place because this party was in power at that time. Basic economic knowledge won’t tolerate this sort of novice statement. For those, suggestion would be to review Macroeconomics 102 again.            

Period	Party in the Power
Period 1 (5 Years)	Party A
Period 2 (5 Years)	Party B
Period 3 (5 Years)	Party A

Secondly, a common suggestion would be: rather observing development in macro variables for comparisons, one may look for a policy based economic analysis, through which making comparison of policies taken by various governments is possible. Say, if the price of cell phone is Tk5000 under Period 3 (Table above), reduced from Tk10,000 under Period 2, then Party A can’t claim that during their period, prices went down as compared to what was the price during Period 2 where Party B was in power. Party A can only claim such if prices reduced due to policy shifts taken by Party A during Period 3.     

Third, this is again basic economics knowledge: an achievement in Period 3 doesn’t necessarily mean that it is the effect of policy actions taken in Period 3. In reality, development in macroeconomic variables follows lag actions and usually it takes several periods before getting the actual results of a policy action taken by a particular government.