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Bangladesh may face risks of middle-income trap and jobless growth

News Published: Monday, Jun 23, 2014

Dhaka Tribune Report
Bangladesh may face risks of middle-income trap and jobless growth 
Kayes Sohel

Economists fear as they suggest reversing the country’s growth strategy

Bangladesh may face the risks of middle-income trap and jobless growth unless the present pattern of growth is not reversed, economists fear.

They said traditional problems like energy and land crisis should be removed while eliminating corruption and establishing rule of law are among the immediate challenges for accelerated and sustainable growth.

A galaxy of renowned economists raised the concern at a session titled “Growth Strategies And Macroeconomic Stability” of the “First BEF (Bangladesh Economists’ Forum) Conference” at a hotel in Dhaka yesterday.

Economic Adviser to the Prime Minister Mashiur Rahman moderated the session on the first day of the two-day conference.

Former director of UN IFAD Mohiuddin Alamgir in his presentation said the situation Bangladesh is likely to face on its way to prosperity would be to face the consequence of the Philippines – record growth with little or no employment growth.

This is because the country’s productivity growth is induced by new technology, which seems to have reduced employment growth. Second, worker/employment shifts from low productivity to high productivity sector pushed by rural-urban migration is having the same impact on growth of employment.

Alamgir found two immediate challenges to overcome – the so called middle-income trap and jobless growth. “The latter is an emerging phenomenon faced by countries like the Philippines, high growth rate accompanied by sustained high rate of unemployment.”

Bangladesh could conceivably move to a higher trajectory of accelerated growth but should then grow at a rapid pace avoiding the middle-income trap like Brazil, Indonesia, Malaysia, South Africa and Thailand, and escaping the current fate of the Philippines of jobless growth, the paper noted.

“Beyond the middle income trap and jobless growth which represent structural limitations to growth, Bangladesh will have to deal with a number of other constraints to longer term.”

World Bank lead economist Zahid Hussain, however, sees political stability, enhancement of ability to enforce rule of law and equability, and to encourage business community to seek profits from improving productivity, learning efficiency rather than parking savings in the offshore are the key challenges for higher growth and economic development.

He said capital accumulation is beyond dispute for accelerating the growth. Macrocosmic scenario is good but private investment scenario, a pre-requisite for the sustainable growth, is not in good shape in Bangladesh. However, Bangladesh had done well but it falls short of well behind in Asian economics, he said.

In his presentation, vice chairman of Policy Research Institute Sadiq Ahmed said under the high growth scenario, Bangladesh would attain middle income status comfortably by 2021 and move on to $2,500 per capita income in 2030.

“If growth rate stays at the present level, Bangladesh still attains middle income status by 2021. However, if growth slides to the low case, the attainment of middle income status by 2021 will likely become questionable.”

The high growth scenario causes per capita GDP to almost triple in 16 years, from a low of $882 in 2014 to $2,500 in 2030. As compared to this, per capita GDP reaches $1867 under the base case and only $1601 in the low case, he said.

“The gap between the low case and high case is strikingly large and is indicative of the importance of paying attention to the growth strategy.”

The most important growth drivers are: the accumulation of capital, the growth of labor force, quality of labor force, and the contribution of the growth of total factor productivity (TFP).

In the past two years, the investment rate seems to have stagnated, especially the private investment effort. The fact that the national savings rate exceeds the domestic investment rate is suggestive of an incentive problem and other demand side constraints that require proper investigation and resolution, the paper said.

“If Bangladesh is unable to expand its investment effort substantially in the coming years, this traditional source of growth will be jeopardized. This presents a major policy challenge.”

It said the income of Bangladesh was not much different from that of China. Bangladesh has achieved considerable success in securing higher rates of GDP growth, but this performance falls short of the aspirations articulated in the government’s Vision 2021 and the Perspective Plan 2010-2021.

These growth rates also fall short of growth achieved in the dynamic East Asian economies of South Korea, Malaysia and China and these countries have moved far ahead of Bangladesh, according to paper.

MG Quibria, professor of department of economics at Morgan State University, Maryland also spoke.

- See more at: http://www.dhakatribune.com/economy/2014/jun/22/bangladesh-may-face-risks-middle-income-trap-and-jobless-growth#sthash.duNkw85X.dpuf



Muhith for serious efforts on land use to improve productivity 
Tribune Report

“Plan for the best use of land is important at the upazila level. The land management is so poor in Bangladesh. I think, we should work seriously regarding this”

  • Muhith in the inaugural session of the ‘First BEF (Bangladesh Economists’ Forum) Conference’ at a hotel in Dhaka yesterday   
    Photo- Dhaka Tribune

Finance Minister AMA Muhith yesterday put emphasis on best use of land for increasing the productivity.

“Plan for the best use of land is important at the upazila level. The land management is so poor in Bangladesh. I think, we should work seriously regarding this,” Muhith said, opening the two-day conference of Bangladesh Economists’ Forum (BEF) at a city hotel.

More than 500 economists, researchers, experts, policymakers and journalists are taking part at the conference to discuss a series of issues relating to growth, macro and financial policies, fiscal policy and capital markets, trade, aid and infrastructure, poverty reduction, human development, sustainable development and public policy-making and institutions.

Muhith said Bangladesh is a land of impossible attainment as it moves up despite many impediments. “You will be successful here in every filed as the people is capable despite many impediments.”

He admitted the fact that political instability and infrastructure bottlenecks were the barriers for boosting the economic growth. “Bangladesh is facing serious infrastructure deficit. We need huge infrastructure development,” he said. Reiterating to revive the private investment, the finance minister said the government is focusing to encourage the private investment for meaningful growth.

Chairman of Centre for Policy Dialogue Rehman Sobhan emphasised the need for political stability for faster economic growth. “It can be division in politics, but in economy there should be no division among the political parties.”

While presenting the keynote paper titled “Farming, fertility, food: why has Bangladesh done better than expected? Can it continue to do so?” Professor at University of Sussex Michael Lipton called for redistributing farmland for effective use of land.

“Top 5% own 26% land, but their farm size average only 5.3 acres! Its reform may be counterproductive unless ownership ceiling is enforced,” he said.

He said Bangladesh is doing well in its economic arena especially in farming, fertility and food sector, and it would continue this trend in future.

Lipton said Bangladesh has reduced poverty, gender discrimination, ensured food security and done well in the health and education sectors from 1990 to 2014.

“This success is better in comparison with India,” he added. He hoped that Bangladesh would continue to make successes by reducing political violence and arrange dialogue about forming policy.

- See more at: http://www.dhakatribune.com/regulation/2014/jun/22/muhith-serious-efforts-land-use-improve-productivity#sthash.AyHRxhLM.dpuf