When is Bangladesh's next graduation?

Bangladesh's recent graduation to the lower middle income group has surprisingly received cynical comments from some corners. Some critics are lamenting over this achievement only because the country will lose numerous concessional loans and other benefits usually extended to low income nations. What a negative mentality we have! This mindset is seriously poor, regressive, pessimistic, and illogical. It is just like crying over unemployment benefits which you lose once you get a job.  

Every improvement involves some costs. But we shouldn't stop building the Padma Bridge because some boatmen will lose fares. After the recent graduation, some of us are shedding tears over losing a bunch of grace items given by donors or international agencies like the World Bank or the IMF.  We hear this noise at the very time that our budget dependence on foreign donors is only 2 percent while it was 88 percent after independence. The way moral poverty has subconsciously engulfed our sense of dignity is appalling. Let us get rid of this and look forward to how swiftly we can reach the upper middle income status. 

To achieve the upper middle income level, we cannot just target the figure of $4,125 which the World Bank has posted, because they will be updated due to many factors including inflation as time passes by. Roughly, we need to increase our per capita income by around four times. How will it be possible? The two vital determinants are the growth rates of population and output.  

Given the current population growth rate of 1.3 percent, I am assuming a one percent growth rate -- for a nation that drastically slashed population growth from 3 percent after independence to 1.3 percent of late. We get three major scenarios based on the three GDP growth rates -- 6, 7, and 8 percent. To graduate to the upper middle income group, we must not only increase our GDP growth, but also make sure that per capita income growth is also impressive. With an increasing population growth, a substantial part of GDP growth will erode and render the residual as per capita income growth.  Hence, to ensure a respectable growth rate of per capita income, our optimal strategy would be to minimise population growth and maximise GDP growth.

If GDP growth remains at 6 percent and population growth at 1 percent, as assumed to be the same for all three scenarios, per capita income growth becomes 4.95 percent [= (1+6%)/(1+1%)]. It will then take 28.69 years to raise our per capita income by four times. Accordingly, Bangladesh is likely to graduate to upper middle income status in approximately 2043. The timeline could be shortened with accelerating growth. For example, it will take us only 24 years to graduate if we can maintain 7 percent GDP growth, enabling us to graduate in 2039. With 8 percent GDP growth, which is slightly too ambitious based on present observations, graduation will come about four years earlier, in 2035.  

Even a fortune teller cannot predict the years of graduation exactly, because they are subject to change based on different figures of both population and GDP growth. But the bottom line is clear: we must work hard to reduce our population growth with dedicated campaigns, work towards women's empowerment, quality education and provide subsidies for birth control. Incentivising one-child families, particularly those with only one daughter, should be a priority. Per capita income in China would not have come to the level of almost $8,000 had the country not launched the one-child policy in the past. Its population growth rate at present is 0.5 percent. Higher literacy rates and development help reduce population growth rate. For example, Sri Lanka's population growth is 0.8 percent, and that of USA is 0.7 percent.  

While efforts to reduce population growth will continue, devising ways to increase GDP growth must be active at full throttle. We all believe that our economy is not operating at its full potential. If our neighbour India can achieve 8.5 percent growth, why can't we? India is not extraordinarily different from us. We share the same climate and have similar institutions. We have a common history of policy synchronization, going back to the early 1990s. However, one thing is missing on our part. Our liberalisation differed from India's in pace and nature; we are still hesitant to open our market. That is reflected in the indices of global openness and ease of doing business. The quality of education is another area which we must address immediately. The list of top 100 Asian universities includes none from ours, but at least 10 from India.

We need to address priority areas which must be reformed to steer growth. One of the areas is corruption that takes off 2 to 3 percent of our GDP growth. Bureaucratic tangles and unnecessary impediments are the sources of corruption. These tangles are often blamed for the low foreign direct investment in our country. We ought to be sincere about tackling such issues. 

Growth can be increased by at least 1 percentage point by simply making Dhaka functional. If we address only these two areas -- the growth rates of population and output -- lifting our growth to even 8 percent will not be hard. These steps alone will empower us to graduate to upper middle income bracket in almost 20 years from now. 

The writer is Chief Economist of Bangladesh Bank.