Key challenges Increasing private investment

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Offline Md. Fouad Hossain Sarker

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Key challenges Increasing private investment
« on: June 10, 2013, 02:46:31 PM »
Acceleration of economic growth is singularly important prerequisite for poverty reduction. If the growth rate is to be raised to 8 per cent by 2013, investment/GDP ratio has to increase to well over 30 per cent; the current ratio is about 24 per cent. Over 80 per cent of total investment is accounted for by the private sector. It will be noticed from the synoptic view that the indicators such as credit to the private sector, term lending, excess liquidity of the scheduled banks and import of intermediate goods, raw materials and capital machinery clearly point to slow-down of private investment.

In order to increase private investment, urgent attention has to be paid to:

-Addressing the prevailing shortage in supply of gas and electricity to industrial establishments,

-Ensuring peace and security in industrial areas and ports,

-Relieving transport bottlenecks,

-Pursuit of regulatory reforms to reduce the cost of doing business,

-Removing ambiguity in the Government's policy stance with regard to privatization and faster implementation of PPP projects.

Reviving export growth:

The slow-down in export cannot be convincingly attributed to global recession. Our exports suffered negative growth during April-October period of 2009 when the economies of developed countries already started recovering. The United States economy, for example, grew by 5.7 per cent in the last quarter of 2009, following 2.2 per cent growth in the third quarter. It is also interesting to observe that even during July-September period of 2009 when RMG exports experienced sharp decline, the fall in value of both woven garments and knitwear was more or less the same as the fall in volume (about 10 per cent).

This raises two issues for closer close-examination:

(i) whether reduction in price through subsidies would lead to enough increase in volume to increase foreign exchange earnings;

(ii) whether the fall in volume is due to domestic production problems or external demand constraint.

Among other issues that require urgent attention to revive export growth are:

-Solving all domestic production problems including those mentioned under the heading "increasing private investment,"

-Exploring new markets beyond European Union and the United States which are the principal destinations of our exports,

-Invigorated efforts to secure duty and quota free exports to the United States as well as to some advanced developing such as China, India and East/South-East Asian Countries,

-Product upgradation to take advantage of the recovery in developed economics,

-Diversification of the basket of export goods, including through enhanced FDI in the production of these goods.

Maintaining the momentum of remittances:

As noted before, the growth of remittances in 2009 has been buoyant, though lower than in 2008. The challenges here relate, among others, to (i) solving the problems confronted by our workers in existing markets such as Saudi Arabia (the largest source of remittance) and Malaysia (ii) finding new markets (iii) upgrading and diversification of workers' skills.

Containing inflation:

There has been an uptake of inflation in recent times. As I argued in an earlier paper, there is not a lot that the government can do to contain inflation in a small open economy. Nevertheless, efforts should be made to the extent possible to increase domestic production, ensure adequate imports and provide relief to the poor who are hardest hit by the rise in the prices of essential commodities. The measures already adopted in Bangladesh such as open market sale of food grains at subsidized prices, re-introduction of the Employment guarantee scheme initiated by the caretaker government, expansion of the wide variety of other social protection net schemes etc. have to be maintained and strengthened.

Government finances and expenditure:

The Finance Minister recently announced quite justifiably that he would like to raise government expenditure/GDP ratio to 20 per cent. If the budget deficit has to be limited to a reasonable level of say, 5 per cent, revenue/GDP ratio has to reach 15 per cent. The current indications are that the target of 11.6 per cent proposed in FY 10 budget is unlikely to be met. Hence there is an urgent need for strengthening revenue collection efforts. The rate of implementation of ADP has been better than in the previous year. Nevertheless, it is very unlikely that the entire amount of Tk. 30,500 crore will be spent within the current fiscal year. Therefore, implementation efforts need to be invigorated further. At the same time, it has to be ensured that the quality of outputs expected from the development expenditure does not deteriorate.
Md. Fouad Hossain Sarker
Assistant Professor and Head
Department of Development Studies
Faculty of Humanities and Social Sciences
Daffodil International University