Good governance, integrated policy, accountable strategies projected by economists
Dhaka August 11 2022 :
Recent global and domestic crises are causing short-term shocks to Bangladesh’s macroeconomic stability.
Exploring the policy responses to these challenges economists argues for undertaking long-term structural reforms for strengthening the economic fundamentals of the country.
The impact of the recently inaugurated Padma bridge will drive agricultural and industrial growth along with improving connectivity across the country, propelling the development of the south-western region of the country.
The challenges in utilizing the demographic dividend of Bangladesh need to undertake effective policy measures to address unequal access to education, lack of quality education, youth unemployment, mental health and sexual and reproductive health.
Effective disaster management strategies are needed to tackle disasters induced by climate change and other manmade hazards, Bangladesh must take preparation on both institutional and community levels to be resilient.
Those were highlighted by Dr Selim Raihan, Professor of Economics, University of Dhaka and Executive Director, South Asian Network on Economic Modeling (SANEM) during a virtual session titled “The anatomy of macroeconomic challenges in Bangladesh” on August 10 2022.
Dr Selim Raihan, Professor, Department of Economics, University of Dhaka and Executive Director, SANEM presented key note presentation during the session and Professor Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD) attended the session as expert discussant.
Dr. Sayema Haque Bidisha, Research Director, SANEM, different university students, economists and media, among others, took part in the session.
Professor Mustafizur Rahman during his speech pointed out policy leadership with midterm financial strategies could be the key to tackle economic crises.
He also mentioned good governance and with integrated policy formulation accompanied by transparent, monitored implementation strategies required to be undertaken by the government for curbing such crises.
According the key note presentation titled ‘The macroeconomic success story of Bangladesh’ the economist pointed out that Bangladesh had experienced robust economic growth during last couple of decades had maintained a gross domestic product growth of average 6.8 per cent.
Bangladesh has maintained a stable public and private investment growth till 2019.
The country had experienced robust performances of export growth worth up to $50 billion and earned remittances growth worth up to $20 billion till 2021.
Its economy had experienced stable current account balance as percentage of GDP and attained manageable foreign debt and low foreign aid with stable GNI ratio.
Bangladesh economy had managed comfortable foreign reserve worth $ 41.8 billion till fiscal 21-22.
It has also maintained stable budget deficit and attained manageable inflationary pressure during 2010.
The economy had attained stable exchange rate till fiscal 2021 and gained stable electricity production capacity of 22.482 MW till fiscal 2022.
There are stresses on the other side of the coin.
Bangladesh has one of the lowest tax-GDP ratio in the world.
There are problems in the banking sector.
The sector has non-performing loans, scams, weak governance, Lack of autonomy of the central bank.
There is fixation of the interest rate and despite the problems; the banking sector has been able to cater the need of two growth drivers of the economy, Ready Made Garments (RMG) exports and remittances.
Bangladesh had very low Foreign Direct Investment (FDI) in percentage of GDP worth 0.58 per cent in contrast with neighboring countries.
Bangladesh has highly concentrated export basket in contrast with India and Vietnam.
Bangladesh achieved stable exchange rate at the cost of exchange rate misalignment.
Exchange rate misalignment affected diversification of exports.
While the RMG has been compensated, non-RMG export sectors suffered most from the exchange rate misalignment.
According the economist other major challenges Bangladesh economy is facing like there are problems of competitiveness and high cost of doing business. Sluggish employment growth is there.
Illicit money transfer is growing, Budget as percentage of GDP is still much lower than what should be given the size of the economy.
High amount of subsidies are burdening the government.
Weak capital market hampering economic growth and there are risks of poor management of foreign debts.
Most of the mega projects undertaken are burdened with mounting cost pressure, corruption and timeline extension.
Electricity generation success earned and concerns grown with payment of huge capacity cost while COVID-19 aggravated many of these challenges to a new height.
Moreover Russia-Ukraine war, global inflation pressure has mounted recent, current socio-economic crises.
Nature of the crisis is pressure from both demand and supply sides, but supply side disruption is the dominant one.
Covid recovery process has enhanced demand.
Due to Russia-Ukraine war there are severe supply disruption and resulting prices of food, fuel, raw materials with inflationary pressure.
Uncertainties are looming in global trade and economic recovery process.
In looming global recession aspect in particular, in the European Union and North America, trade risks and pressures are mounting.
There are concerns over remittances decline, diminishing exports and vanishing foreign reserve., The pressure becoming condensed due to high import growth to meet internal demand and business production consumption.
Pressure on exchange rate is going to an uncontrollable state and building risks for the economy in the long-run with short-term economic shocks.
The government responded with three types of responses.
- Attempts to contain import.
- Exchange rate management.
- Austerity measures.
The government had started the process of securing a loan from the IMF (US$ 4.5 billion) and also, loans from ADB, World Bank. Different conditionality were attached to the loans made economic pressures mount high.
The think tank suggested measures to be undertaken during the session.
Two types of measures were suggested. 1. Firefighting measures: So far, the emphasis is on firefighting measures. Need to go beyond these. 2. Structural measures. Need to put a lot of effort.
Exchange rate management and supply side issues need to addressed with export diversification. Interest rate management and banking sector governance with banking sector reform was suggested.
Besides, Taxation reform (policy and tax infrastructure reform) was also demanded.
Subsidy cut required and revisiting of energy pricing of fuel and electricity was also projected.
Unless structural measures are undertaken, short-term shocks can destabilize the long-run trend of the economy quite significantly.
The session was part of the “Bay of Bengal Regional Trade and Connectivity Capacity Building Program”.
SANEM, in collaboration with the USAID and U.S. Department of State-funded Cross-Border Infrastructure and Connectivity project (CBIC), has been conducting this program since October 2021.