Bangladesh will celebrate 50 years of its independence in 2021. The country crafted Vision-2021 in order to mark the celebration which is mainly focussed to achieve the Middle Income Country (MIC) status by the timeline. With a view to reaching the cherished and desired vision, the country formulated long term perspective plan (2010-2021) and is currently implementing sixth and seventh five year plans.
The World Bank classifies economic status of countries as: low income, lower middle income, upper middle income and high income countries. Bangladesh wants to achieve the lower middle income status by 2021. The method of measuring the status is based on the per capita gross national income set by the World Bank. A lower-middle income country will have a per capita income between $1,045 and $4,125 and an upper-middle income economy needs to have a per capita income between $4,126 and $12,745 in FY2015.
The question is how far the country is moving to its target, and what about the health of the economy. Is the economy on track and approaching to its objectives?
A careful look at the economy shows that there are positives to count on. The supply and demand side effects of the economy supported by strong public investment, reforms in investment climate, developed education system and favourable demographics have been the key to gradual economic growth above 6 per cent on an average for a decade. But the economy has enormous potential to grow faster. French Credit body Coface ranks Bangladesh as one of the 10 emerging economies that are set to take over as emerging economies from the powerful BRICS nations. The country is not yet capable of utilising its potential in full. 26 per cent of the population is still below the poverty line.
By taking all these realities into consideration, it is a big challenge to set the strategies prudently for achieving the targeted growth.
The World Bank argues that Bangladesh requires 7.5 to 8 per cent annual GDP growth rate to reach the minimum threshold of the middle income country status by 2021. Therefore, in order to support high and sustained growth as well as to achieve the status, country somehow needs to figure out strategies to speed up its growth and development.
ENHANCING AGGREGATE DEMAND: A number of steps need to be taken to remove the obstacles and promote sustainable investment in Bangladesh. Investment is considered one of the most important determinants of accelerating growth. According to the World Bank, in order to achieve economic growth of 7 to 8 per cent, Bangladesh will have to raise investment/GDP ratio to at least 33 per cent. In 2014, the ratio was 29.19 per cent which is close to the required level. Structural characteristics of the country create high possibility of enhancing private investment from both domestic as well as foreign investors. The constraints on private investment are political instability in every election cycle and inadequate investment-friendly infrastructure. Moreover, deficiencies in port infrastructure, roads and highways, air transport and railways discourage investment. Poor governance and complex multiple tax system are also responsible for lower inflow of FDI. Therefore, there is an urgent need to work and improve the situation.
Along with private investment, increasing public investment is also critically important. To push aggregate supply, the government can increase its investment in improving infrastructure, education, health and technology sector which will result in long term economic growth through enhancing labour productivity.
Promoting import substitution industries and triggering exports is another important strategy to explore. The country is highly dependent on import of raw materials, intermediate goods and so on. As a result, import substitute industries can be promoted in order to reduce imports. Although exports are doing well with increasing share in the GDP, there are lots of constraints in this key earning sector such as lack of product diversity, excessive reliance on readymade garment and so on.
Remittance inflow needs to be speeded up. Remittance helps increase household consumption which in turn creates higher demand and ultimately stimulates the economy. Bangladeshi migrant workers are mostly unskilled. The government needs to establish vocational training centres to focus on specific requirements of the host countries and thus the sector can be provided the right boost.
SUPPLY SIDE POLICIES: Well-designed supply side policies can help reduce structural, frictional and real wage unemployment and therefore help reduce the rate of unemployment. More active role of the Privatisation Commission will help reduce costs and develop better services through privatisation and deregulation. Deregulation of financial markets is also needed to allow more competition and lower borrowing costs for consumers and firms.
STRUCTURAL REFORMS: Several policies can be taken up to boost economic growth through fiscal and financial management reforms like reforming tax and revenue administration, strengthening banking system supervision and improving the governance, credit risk management, and balance sheets of the SoBs. Securities markets reforms and implementation of demutualisation Act will also be helpful.
The writer is a Fellow, Central European University, Budapest, Hungary.
