When a mother claims that her son could have achieved a grade of A though he actually earned B+, we understand the son performed below his potential and did not work to his fullest capacity for the test. A similar logic is applicable to Bangladesh's growth which now hovers over 7 percent whereas the country has the potential to grow by around 8 percent. This piece argues that Bangladesh is performing below its potential – a sustainable measure of growth that can be achieved through capital, labour and technology. Although Bangladesh's output stands at USD 225 billion dollars, the use of capital, labour and technology is not optimal.

The US Congressional Budget Office asserts that most developing countries underperform. While the developed countries can easily reach their potential growth and even exceed the potential level, developing nations are embroiled with disturbances and imperfections. An IMF study shows that most developing nations experience an output gap of around two to three percent. The output gap is derived by subtracting long-term trend output from actual output. Thus, it is positive when actual income is higher than long-term trend income and negative when actual income is less than the trend income. The US' recent output has a small positive gap, suggesting that the nation has gone above its potential level. But the output gap is mostly negative for developing countries. 

In the same vein, Bangladesh's output is arguably lower than its potential level. Why? There are three major reasons: i) capital has not reached the optimal level; ii) a big part of the labour force remains outside the formal sector; and iii) technology is not widespread and updated. These deficiencies, while common in most developing countries, leave room for improvement. First, quality capital such as better machinery can increase output. Second, quality higher education can enhance a nation's labour productivity (Korea being the best example). Third, technology is not upgraded and is not in widespread use. Bangladesh's internet penetration is around 14 percent while it is almost double for India. Even Sri Lanka, Nepal, and Pakistan are ahead of us. 

Based on our neighbours' experiences, removing fifty percent of our deficiencies in capital, labour and technology is feasible. And that would ensure Bangladesh's potential growth at no less than 8 percent. Moreover, formulating pro-growth policies and strengthening institutions will further empower the economy to accelerate its growth. Thus, Bangladesh's potential growth can be realised by: i) modernising capital; ii) providing technical education for a more productive labour force; iii) importing the latest technology; iv) making institutions transparent; and v) constantly adopting optimal fiscal and monetary policies.

For example, if the government makes at least one type of vocational training compulsory for all students, it will enhance labour productivity and professionalism in the industry. Importing modern technology, if made part of the government's procurement policy, will boost output.

The assessment of potential growth at 8 percent is by no means too optimistic. In October 2009, a group of Bangladeshi economists met in Boston and asserted the possibility for the country to achieve double-digit growth. If we ignore the gloomy projections of the World Bank (WB) for Bangladesh's growth, as very much expected, registering 8 percent growth will not be difficult by 2020. The WB sees 6.8 percent growth for Bangladesh in FY2017 and 6.4 percent growth for FY2018. The Asian Development Bank (ADB) is less pessimistic in its assessment of 6.9 percent growth for Bangladesh over the fiscal years of 2017 and 2018. The IMF will perhaps have slightly different figures. We need to weather the storm of pessimism and always target a higher rate of growth. But the current budget seems to have been plagued by the WB's disheartening numbers. 

Much to our disappointment, the Ministry of Finance (MoF) projects the growth rate for FY2018 at 7.4 percent in the upcoming budget. A low target set by the government always dampens the spirit of the economic agents. Would the National Board of Revenue (NBR) have been able to achieve the current higher rate in revenue collection if the MoF had not targeted high output growth? No. A positive force always works in the economy because economic agents are primarily psychological beings who thrive on incentives and pressures. Targeting low is a disservice to the nation whose emerging economy deserves an ambitious vision. 

Why are we not targeting at least 7.5 percent? Inflation is under control, at slightly over 5 percent. Studies find that Bangladesh can easily go up to 6 to 7 percent inflation without hurting growth. We achieved 7.1 percent growth in FY2016, and expect to achieve 7.2 percent in FY2017. Given this momentum amid political stability, targeting at least 7.5 percent for FY2018 would be desirable. Otherwise, the government would give off a signal of a slowing trend in growth. 

A fall in remittances does not necessarily mean a drastic loss of remittances. A considerable part of remittances are entering the recipient families through hundis, boosting consumption in the rural economy. A rise in rural deposit is a sign of this. Slowdown in export can partly be corrected by depreciating the exchange rate. A rise in import, a large part of which comprises capital goods, translates into output growth in the lagged periods or even in the same year. The weakest area is the banking sector though, and it must be revamped to get the economy going. With all these positive elements, Bangladesh can, and deserves to, achieve 8 percent growth easily.

The writer is visiting fellow at Bangladesh Institute of Development Studies (BIDS) and guest faculty at the Institute of Business Administration (IBA), Dhaka University.

E-mail: birupakshapaul@gmail.com