The International Monetary Fund’s World Economic Outlook published in October 2020 makes crucial revelations regarding the trend in economic growth of Bangladesh in recent years. According to the report, Bangladesh is expected to overtake India in terms of its GDP per capita at current prices measured in US dollars in 2020 after overtaking Pakistan in 2018. As this trend is mainly due to the strong adverse impact of COVID-19 on the economy of India, it is expected that India will recover its superiority in terms of GDP per capita at current prices in 2021.
However, this clearly suggests that the engine of economic growth experienced by Bangladesh in the previous decade has ensured its citizens can enjoy a better standard of living amid better economic conditions than its more populated regional neighbors, India and Pakistan.
Bangladesh reported a GDP per capita of $1,662 and Pakistan reported GDP per capita of $1,558 in 2018, when the former overtook the latter. The GDP per capita at current prices increased on average at 10 percent per annum for Bangladesh between 2011 and 2019, at 4.8 percent average per annum for India and 3.4 percent average per annum for Pakistan.
However, it is important to mention that measuring GDP in current prices does not adjust for inflation and may not capture changes in actual output produced within a country. Pakistan reported a drop of 13.4 percent in 2019, which is likely to continue into 2020. India is expected to decline by 10.5 percent in 2020, but recover to 8.2 percent in 2021.
Although, there are several factors that have led to the stellar economic performance of Bangladesh, the sharp increase in gross fixed capital formation (GFCF) by the private sector as a percentage of GDP needs a closer look. This variable emphasizes the role of investments by the private sector, both domestic and foreign, particularly as the private sector contributes a majority proportion to the total gross fixed capital formation.
Although, several of the poorest countries in the world may report higher levels as it can also be indicative of a relatively weaker role of government in fixed capital investments, the comparison across the three countries with similar historical and economic structures can be relevant when determining factors of economic growth. At 13.8 percent in 1987, GFCF by the private sector as a percentage of GDP in Pakistan exceeded that of India and Bangladesh. However, in 2018, Bangladesh was at 23.2 percent, India was at 21.9 percent and Pakistan was at 11.8 percent. Bangladesh began an upward trend from 1990 onwards, as it increased from a low of 9.5 percent. Interestingly, the lowest level for Pakistan was 10 percent, reported in 2011. It decreased from 14.4 percent in 2008.
Will the vibrancy of the private sector in Bangladesh and its stagnation in Pakistan lead to a further widening of the income gap as measured above? The answer may not be pleasing without more engagement and investment from the private sector.
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