Abdul Bayes

Finance Minister AMA Muhith presented the national budget last Thursday 10 June. It is the second of his government, the fourth of his own making and the 39th budget placed so far in Bangladesh. For the first time, the parliament members witnessed a digital submission of the budget proceedings.

The target set for GDP growth rate at 6.7% may surprise some people but not me. Pessimism might prevail on account of a growth rate slowdown in most recent years, and creeping infra-structural problems, mainly power.

Only in the last two years did we witness a dip in GDP growth rate following national and international adverse events. However, optimism owes to the recent-most bounce back with increased flow of private credit, good harvests, imports of capital and intermediate goods, prospects of operationalising PPP and a good forecast for Asian economies in the next year.

Readers may be reminded that Bangladesh weathered, on average, lower than 4% growth rate till the 1980s. After a volley of adjustment and reforms programs, needed for structural change in the economy, the growth rate picked up to perk at more than a 5.5% average from early 1990s.

Now it seems that we are again locked into a growth rate below 7% for a pretty long time. For example, from 2003-04 till 2009-10, the average growth rate was estimated to be 6.2%. Economists suggest that a sustained 7-8% growth rate for a decade or so is needed to make a dent in poverty.

Professor Wahiuddin Mahmud calls the syndrome of our growth a "demographic dividend." That means, our labour force is growing at a higher pace than is the population growth, and this burgeoning workforce has been doing something to eke out a living. The main propeller of growth in recent periods was this simple behavior.

 

From another angle, one could argue that our growth comes mostly from service sector, which is low-productive and mostly informal in nature  – wholesale and retail trade, transport and construction.

Growth rate was relatively low in terms of the growth in large and medium-scale manufacturing sector  – till now dominated by RMG and other textiles. Transformation where the surplus labour from agriculture would flock into the manufacturing sector has been critically missing.

The window of opportunities in the form of demographic dividend does not last very long and we are a witness to that. The ongoing economic policies, politics, technology and resource endowments can hardly serve us the required sigh of relief by taking us to a higher growth trajectory, say, 7-8% or more per annum. Where lies the fix then?

One fix could be a "big push." That means, we must invest roughly 27-30% or so of our GDP to produce productive employment. Of course it raises eyebrows also as the share of investment to GDP over the last decade hovered around 23-24%. If we can achieve the target of investment at 30% of GDP, a growth rate of 7% plus may not be out of our reach.

One thing should be clear. Admittedly, our domestic savings rate has been lower than that of our investment rate. On the other hand, our national savings rate (where remittance reigns high and compensates for more than the deficit between domestic savings and investment) exceeds investment rate, suggesting that we are in fact not absolutely an aid-dependent economy.

But investment is not only a function of investible resources, nor is it merely a function of incentives. Incentives do not work if producers do not find their activities profit-worthy. Two important fixes are here. Emphasis must be given on infra-structural development, especially uninterrupted supply of gas and electricity for profits to pour in.

 

In a situation where –  and I reproduce from a report published in this newspaper  –  30% of the RMG capacity remains unutilised due to energy shortage and textiles boilers cool off for lack of gas to feed their firing chambers, coffee shops count losses for evenings as their generators cannot run the power-guzzling equipment, sales fall in malls and the hungry cry for power resounds everywhere, the slogan for a substantial rise in investment might turn out to be hollow.

But for that matter, our finance minister is not a man to mourn only. He has taken the challenge to meet the apparently "ambitious" target of reaching 6.7% growth rate by beefing up investment in the next fiscal year.

On the top of his government's agenda is, therefore, the talk of the town: improving energy infra-structure. His budget has committed a huge subsidy to the tune of Tk.2,000-2,300 crore for payments to rental power system. This allocation and few other sensible steps that he outlined to face the "fiery crisis" of energy in the economy may not break the barricades at the moment; yet, surely, it would attack the inertia, so much needed at this hour.

The fix also lies in the changing the mindset about FDI. Hopefully, Asia would become the hub of economic growth next year in the world with a projected growth rate of 7-8%. The wave of that growth could produce a spillover effect on Bangladesh to spur its own growth.

The dwindling dominance of China in labour-intensive exports  –  textiles, footwear, sports shoes etc  –  caused by creeping wage rates is also an opportunity waiting on the wings, as far as FDI is concerned.

 

The regional co-operation within South Asian countries, making Bangladesh a service provider for their transport of goods and services through our ports and accessing power from neighboring countries could pour some food into the investment plate. But for these to happen, a decisive role of the policy-makers is urgently called for.

 

On the other hand, the rate of implementation of ADP projects and the efficiency of project implementation must be ensured. A further advantage could be reaped through PPP allocations given the modalities of implementation of the projects are met quickly.

Thus, higher growth trajectory of, say, 7% or so seems to be within Bangladesh's reach, although far from assured. It can be assured only when the sectoral allocations are properly utilised; government decisions are quickly disposed of; good governance prevail and the international environment reigns over the recession. The highest allocation in the current budget to human resources development led by technological uplift also indicates that end.

That may lead to an investment increase in labour-intensive but technologically developed manufacturing sector, supported by better customs and port management, less regulatory framework.

By and large, we expect a quantitative as well as qualitative increase in our growth rates to help us generate productive employment and a decent standard of living for the population.

Let the "demographic dividend" of growth of the past decades be replaced with the "digital dividend" of growth in the years to come. It is the time to change the bus and shift gear  –  like in India and elsewhere.

Abdul Bayes is a Professor of Economics at Jahangirnagar University.