News Published: Sunday, Jun 22, 2014
Economic progress lauded
Economists discuss Bangladesh's prospects and challenges
Star Business Report
From left, Atiur Rahman, governor of Bangladesh Bank; Sadiq Ahmed, vice chairman of Policy Research Institute; Prof Rehman Sobhan, chairman of Centre for Policy Dialogue; AMA Muhith, finance minister; and Michael Lipton, a professor of Sussex University in the UK, attend a conference of Bangladesh Economists Forum in Dhaka yesterday. Photo: Star
Local and foreign economists joining a major gathering in Dhaka yesterday praised the country's progress on the development and economic fronts.
They also reminded the country of the serious challenges it faces to sustain the advancement and make further leaps, at the inaugural ceremony of Bangladesh Economists Forum's first conference.
Themed “Vision 2030: A framework for economic policy making and strategy formulation in a pluralistic democracy”, the event brought together noted economists from home and abroad to debate the country's prospects and challenges.
The Bangladesh Institute of Development Studies, the Policy Research Institute of Bangladesh and the Bangladesh Bank organised the two-day event in association with HSBC, Standard Chartered Bank and the Association of Bangladesh Bankers.
One of the economists, Michael Lipton, a professor of Sussex University, termed Bangladesh's average 6 percent economic growth in recent years respectable.
“With growth rapid and distribution of wealth not that unequal and not getting worse, there has been very good performance in reducing poverty.” The British professor however did not forget to remind the government that there are still a lot of poor people in the country.
Speaking on “Farming, fertility, food: why has Bangladesh done better than expected? Can it continue to do so?” he said the country has got a few things roughly right over the decades in three key areas—farming, fertility and food.
The three are closely linked with and are at the heart of shared economic progress.
“But for natural progress of opulence, the government must sectorally act wisely on farming, on helping people reduce their fertility and making the food supply more adequate.”
“Or, it could allow the NGOs to act wisely or set a framework for wise private action. Or, it could allow the combination of the two. Otherwise, that progress will never happen.”
While Bangladesh has shown strong signs of advancement in case of human development index, more needs to be done, Lipton said.
For the future of Bangladesh, lower child mortality is a precondition though, he added.
“However good the access is to contraception, you will not have people choosing contraceptives if they are scared that their children are going to die. You must have mortality reduction first.”
Lipton said the country also needs to clearly capture the demographic dividend before ageing burden hits the country. “Ageing will not happen in Bangladesh until 2040, but it will happen, and then economic growth will be more difficult.”
The economist also called for facing the challenges of nutrition in a coordinated manner, as it will cut child mortality. His list of worries for Bangladesh also includes rising obesity and diabetes.
Further pro-poor structural transformation is needed in the agriculture, nutrition and fertility areas, while calling for new institutions for facing new challenges, Lipton said.
AMA Muhith, finance minister, identified the absence of a large-scale manufacturing sector and static private sector investment as two major failures of the economy.
“Unemployment is a serious problem, but somehow people are surviving. It is mainly because of the expansion of service sector and rural activities. Services which could be provided by one person are being provided by three persons.”
“Of course, this division of labour has certainly made some quality improvements, and there is still scope for that. But I don't think this is going to give us the pleasure of having large-scale employment in the country.”
He said the manufacturing sector has not responded very well in creating large-scale employment. “I don't know how to approach it.”
Political stability is an important matter, only to sarcastically, Muhith said. “Look at this country. Without political stability, it is doing quite well.”
Muhith went on to acknowledge that the country faces a serious infrastructure deficit.
“Private investment has been static in the last five years. It is another of our failures. The investment growth has mostly happened in the public sector.”
The biggest challenge in future though would come from the absence of land, he said, while calling for human habitation centres to stop using agriculture land for households in a haphazard manner.
“We will have to make sure that services are provided in those centres from one place.”
The minister said the government has decided to switch its attention from energy development to manpower development in its current term. “It is very, very important for the nation to develop skills -- but not only for our country but also for the export markets.”
Rehman Sobhan, chairman of the Centre for Policy Dialogue, called for utilising the expertise of Bangladeshis living abroad.
“Bangladesh has attached a great deal of importance in using the diaspora's financial capital. We get large volumes of remittances, but these do not come to us in the form of usable investible capital.”
“We have not been effective in attracting the diaspora's intellectual capital though, which is no less significant.”
Sobhan said the country needs a free and fair election for political stability. “For the desired political stability, we need a strong election commission,” he said, while calling for continuity on economic policy.
In a separate session, Atiur Rahman, governor of Bangladesh Bank, said the financial sector has performed fairly well overall in supporting steady, stable and inclusive growth of the real economy, while upholding its own systemic stability during episodes of domestic and external shocks, including the global financial crisis.
However, shortcomings in market development, coupled with governance weaknesses arising from encroachments on operational independence of regulators are keeping the financial sector performance below its potential, he said.
Appropriate corrective steps should be taken with no further delay if the financial sector is to rise up to its call of supporting the nation's quest of attaining the upper middle-income status by 2030, Rahman said.
The central bank's priorities will include continuing the thrust to ingrain a socially responsible financing culture in the financial sector and maintaining the support to agricultural sector and small and medium enterprises, he said.
The strength and capacity of the financial sector would be enhanced such that it withstands the pressures from increasing external shocks as the economy opens up and integrates faster with the global economy.
Rahman said regulators in the various segments of the financial sector will need fast upgrading of their capabilities of supervising a much more open, and hence a much more vulnerable, financial sector than before.
Speaking on public finance and urban development, Salehuddin Ahmed, former governor of the central bank, said the drastic changes in physical, economic and social structures of urban areas have been posing serious challenges for sustainable urban development.
“Urban areas are now afflicted with innumerable problems ranging from law and order situation to deteriorating environmental conditions.”
In his paper, the economist said the environmental problems of urban areas have direct and immediate implications for human health and safety, especially for the poor, and for business productivity.
“Urban environmental problems are of central concern for policymakers since adverse conditions resulting from inadequate waste management, poor drainage, air pollution, lack of access to safe water and sanitation, exposure to excessive noise level, traffic congestion as well as inadequate health services exact a heavy toll on the quality of life.”
He said the dependence of local government bodies including urban ones on central government for finance must be reduced.
The present ad-hoc and discretionary practices of central government in allocating resources should be abandoned to achieve fiscal decentralisation.
He called for setting up a permanent local government finance commission to achieve fiscal decentralisation in true spirit.
Hassan Zaman, chief economist of BB, said the country would have to create a lot of jobs for production-based growth. To do so, the country has to woo a substantial amount of private investment, he said.
Infrastructure, political stability key to high growth: analysts
Star Business Report
Adequate infrastructure, energy, skilled manpower, political stability and investment-friendly climate are the key factors for higher economic growth, economists said at a discussion yesterday.
Bangladesh has achieved considerable success in gross domestic product but fell short of the growth numbers achieved by the other developing countries, they said.
They were speaking at the discussion on “growth strategies and macroeconomic stability”, which was organised as part of a two-day long economic conference hosted by Bangladesh Economists' Forum (BEF), a non-political voluntary body of professional economists, for the first time.
Presenting a paper on “searching for sources of growth in Bangladesh”, Sadiq Ahmed, vice-chairman of Policy Research Institute, said per capita income has grown from $100 in 1974 to $850 in 2013 (according to 1995-96 base year). With fiscal 2005-06 as the base year, per capita income rose to $1,190 in 2014, according to government-run Bangladesh Bureau of Statistics.
Nevertheless, Ahmed said, this performance is below the potential and much lower than the growth rates achieved by China, Malaysia and Korea, who were also low-income countries like Bangladesh in 1974.
Malaysia and China are now at the higher end of the middle-income group, while Korea has crossed over to the high-income category. “Bangladesh is still at the low-income group, and is aspiring to enter the low-end of middle-income group by 2021.”
“There is no reason why Bangladesh cannot achieve a higher growth rate than its current one,” Ahmed said, while stressing capital accumulation, investment-friendly climate, policies for labour growth, strengthening human capital, developing infrastructure, acquiring better technology and strengthening structure of production for higher growth.
Policies that promote efficiency and improve governance and institutions are particularly important to increase the contribution of total factor productivity growth, he added.
Presenting another paper, “Avoiding the middle-income trap and jobless growth: overcoming binding constraints to growth and getting policies and institutions right”, Mohiuddin Alamgir, former president of the Bangladesh Economic Association, said transport, energy, and skill and human capital are the major constraints for economic development.
Quantitative and qualitative policies and investments are needed to improve the situation in the sectors, he said.
Good governance, shift to and adoption of information technology, planning process and integration between planning and budget are also important factors to the growth trajectory, Alamgir added.
Commenting on the two papers, Zahid Hussain, lead economist of the World Bank's Dhaka office, said steps need to be taken to increase political stability by strengthening incentives for groups to achieve their aims peacefully.
“Securing peaceful access to rents should play a crucial role in any negotiation.”
He stressed the need to enhance the state's ability to enforce the rule of law impersonally and equitably, especially in its dealings with the non-elite-run political, economic and social organisations.
Hussain also recommended encouraging the business community to seek profits by improving productivity by way of investing in learning, efficiency and technology rather than seeking rents from the state and parking their savings offshore.
The World Bank's Commission on Growth and Development indentified five reasons that brought about sustained high growth post-World War II. They are: macroeconomic stability, advantage of the world economy, markets to allocate resources, sustained high investment and saving rates and capable governments.
“Bangladesh does very well on the first, reasonably well on the second and third, not so well on the fourth, with a lot wanting on the last,” Hussain said.
“By increasing savings and investment rate and the capability of the government while maintaining macroeconomic stability and allowing markets to do what it does best, Bangladesh will make it to the high-income group sooner than many pundits think. However, it may not be in our lifetime.”
Mashiur Rahman, economic affairs adviser to the prime minister, moderated the discussion.