Policy Research Institute - PRI Bangladesh

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Political uncertainty, poor infrastructure major threats to economic growth

News Published: Thursday, Oct 04, 2012

Thursday, October 04 2012
Political uncertainty, poor infrastructure major threats to economic growth

Say economists at PRI event

FE Report

FE_P1010061Country's leading economists Wednesday said looming political uncertainty and large-scale scam in banking sector will pose serious threat to achieving many macro-economic targets of the sixth five year plan.

They said the controversies over Padma Bridge Project would create multifarious negative impacts on the country's economy in future.

They outlined that neither the GDP growth target nor the target for curbing inflation would be met though some of the economic performances under the sixth five year plan were commendable. 

Those issues were discussed at a meeting organised by the Policy Research Institute (PRI) on the occasion of publishing its quarterly brief held at the PRI Conference Room.

Prof. Wahiduddin Mahmud chaired the discussion where former advisor Dr. ABM Mirza Azizul Islam, NBR Chairman Dr. Nasiruddin Ahmed, BIDS Director General Mustafa K. Mujeri, General Economic Division Member Prof. Shamsul Alam, former Privatization Commission Chairman Inam Ahmed Chowdhury, social activist Badiul Alam and adviser to the governor, Bangladesh Bank, Hassan Zaman, spoke on the occasion. 

Dr. Zaidi Sattar, Chairman, PRI made opening remarks where Dr. Sadiq Ahmed, Vice Chairman, PRI and Dr. Ahsan H. Mansur, Executive Director, PRI presented four keynote papers on different issues.

Prof. Wahiduddin Mahmud said if the political situation turns volatile the economy will be badly impacted by it and no benefit will emerge by calculating economic indicators.

"Inadequate Infrastructure and political instability are two major constraints for the country's investment growth," Wahiduddin Mahmud said summing up the discussion during the policy briefing.

Mirza Azizul Islam said a large amount of state-owned commercial banks' money has got stuck with different institutions like Hall-Mark Group, Destiny Group which will jeopardise the smooth economic activities and investment.

He said the flow of external assistance from development partners will not improve as the country is heading towards confrontational politics.

"I do not expect that the gross domestic product (GDP) growth target or the targeted inflation of the sixth five year plan will be achieved," Mirza Aziz said.

BIDS Director General Mustafa K. Mujeri said the quality of macro-economic management has come under question due to the government's failure in managing banking system.

"The dispute with donors over Padma Bridge Project would seriously impact the overall economic activities in future," Mujeri said adding that there are enough evidence of serious mismanagement in the country's banking sector.

Mujeri said the poverty reduction and social development goals under the five year plan will not be met with the present rate of progress.

Former Privatisation Commission Chairman Inam Ahmed Chowdhury suggested not to speak recklessly on the sensitive issues like Padma Bridge Project by government's high officials.

He said the government should have selected a few people to act as official spokespersons to avoid such experience.

Chowdhury suggested implementation of the public private partnership projects (PPP) through privatisation commission and allowing the turnkey basis procurement to hasten development activities.

Sadiq Ahmed in his paper on Implementation of the Sixth Plan Macroeconomic Framework said the outcomes of the first two years of the plan showed mixed record of performance.

The current account and fiscal balances are broadly on target, but there is substantial shortfall in the targets for the investment rate, growth of exports and the inflation rate.

"Slower GDP growth and higher inflation relative to the plan targets, unless tackled forcefully, will likely to have adverse implications for securing the employment and poverty reduction targets of the plan," Ahmed noted.

In his other paper tiled 'Implementation of the Sixth Plan Strategy for Foreign Resource Mobilisation' Ahmed said Bangladesh is lagging behind in capital accumulation since investment as a percentage of GDP remains stagnant over the past few years.

"Increasing investment to the desired level appears to be a formidable challenge and requires major effort to improve the investment climate, especially to attract more FDI," he said.

He suggested five ways to increase investment which included jump start of stalled PPP strategy, facilitate infrastructure, better utilisation foreign aid in pipeline, and immediately resolve dispute with donors to improve macro-economic stability.

Ahsan H. Mansur in his paper on "Tax Revenue Mobilisation -- sustaining the recent success," said the government has been most successful in tax revenue mobilisation in the recent years

The NBR has exceeded the tax revenue target for three consecutive years despite facing challenges in the form of declining dependence on import-based taxes and increased volatility in imports.

"Buoyant performance in domestic based taxes -- VAT and direct taxes in particular -- helped reduce dependence on import based taxes and better anchored the revenue performance to developments in domestic economic activity," he said.

He suggested sharing information between VAT and income tax wings for the outcome of a greater potential in generating revenues.

In his second paper titled "Revamping of the power sector: Where do we stand now," Ahsan H Mansur said at present electricity generation ranges between 5200 MW and 6000 MW, which is however well below the installed and actual generation capacities of 8819 MW.

"Because of the much higher generation cost for the liquid fuel-based power plants, PDB's capacity to pay has been severely constrained despite a marked increase in subsidies from the budget causing shut down of power plants with 800 MW-1200 MW of capacity," he added.

Mansur suggested ensuring rapid financial closure of the larger power projects which have been contracted out.

He also suggested finalisation of the coal policy as early as possible to secure low cost energy for power.

He also suggested market-based pricing of electricity and moving away from the monopoly role of public sector entities.

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