Good news doesn't come alone. This is perhaps revealed by the two cheerful news items that hit newspaper headlines recently: (a) Bangladesh has attained a lower middle-income country status via the World Bank's reckoning and (b) the World Food Prize - also called a Nobel Prize in Agriculture and Food - went to Sir Fazle Hasan Abed, who is the founder and chairperson of the world's largest NGO, BRAC. The BRAC is reported to have helped more than 150 million people out of poverty in Africa and Asia as well as expanding its efforts to 10 additional countries. Bangladeshis take a pride in both the achievements.
Is graduation to a lower middle-income country status a blessing on all counts? Those who reckon that a lift in income isn't a lift in life might smell rotten rat in the graduation process. But leaving aside for the moment the debate that per capita income growth is necessary but not sufficient for well-being of people, we can definitely cheer about our graduation to a low middle-income country. It is because this news leads us to believe that we are progressing well on economic front, especially reaping an economic growth rate of 6 per cent plus over a whole decade. The graduation to the status of an upper middle income country is just a matter of time. It makes us feel good as others would have a glance at us with respect.
Critics, on the other hand, would like to argue that all that glitters isn't gold. In their view, in consequence of the graduation, Bangladesh might have to forgo aid inflow and preferential arrangements in trade and other facilities. But that doesn't seem to be the case. In reality, "despite the elevation in the World Bank's ranking, Bangladesh will continue to receive the trade benefits it is entitled to as a least developed country at least until 2021". Remember that a graduation from the LDC and the income classification of the WB are different things. Economists are of the view that the recognition in fact would help Bangladesh in terms of a reduction in costs of opening letters of credit for Bangladeshi businessmen, lowering of sovereign credit risk etc. By and large, the suspected problems might appear after reaching a per capita income of $4,000 when resistance to accessing concessions may crop up.
But we shouldn't be oblivious of the fact that the cheering news also throws some challenges ahead. First, as wages would grow in tandem with economic growth and labour shortage, the task of keeping competitiveness would appear a major challenge. This is not unique for Bangladesh but many other countries had to pass through such ordeal in their transition to different economic status. For example, once upon a time Bangladesh received investments (especially in RMG) from growing high-cost countries like Korea, Thailand and Singapore. These countries have comparative advantage in producing RMG but lost the edge in the wake of labour scarcity. It thus suggests that we start preparing for scaling up of productivity by technology and training. The graduation so far to low income country status has mostly been contributed by unskilled labour but the next position would warrant contribution mostly from skilled labour.
The other challenge relates to inequality in income. Even in the process of the graduation to low income country status, inequality in income has risen sharply over time. The reasons aren't unknown either. As growth proceeded, disparity in wages developed between labour and non-labour income (land and capital). The process of growth generated more non-labour income than labour income and thus resulted in income disparity. The nature of the upcoming disparity would be between skilled and unskilled labour. It is obvious that as per capita income would shoot up to say $3,000-$4,000, the types of goods and services demanded would need more skill and sophistication which could only be supplied by expert artisans. The policy implication of this is the necessity to build strongly human resource base. By and large, a graduation to upper level and reduction of emerging inequality would require, among other things, proper policy and institutions as well reforms in the existing institutions. Unfortunately, the efficacy and efficiency of the institutions in Bangladesh are allegedly going bad to worse. We need to rethink about our industrial and trade policies, as emphasis has to be given on improvements in human rights, labour rights and environmental issues. Â
While a rise in per capita income is a welcome news, the best would happen when Bangladesh ceases to be an LDC. The moot concern is the graduation from LDC status, coming out of the aid dependency and standing on own feet. The United Nations Economic and Social Council (ECOSOC) classifies countries either as LDC or non-LDC. It revises the classification every 3 years. Its decision is based on three indicators: per capita income, human assets and economic vulnerability. The Finance Minister other day informed us that Bangladesh has already reached its target on economic vulnerability and is shy of only 2 percentage points from reaching the same for human assets. The good news is that if a country comes out of the LDC bracket, it continues to enjoy benefits for another three years.
Recall our initial remark that good news doesn't come alone. Geographically, Bangladesh appears small but, believe it or not, the country has been recognised as the 35th largest economy in the world on purchasing power parity basis (method of currency valuation based on the premise that two identical goods in different countries eventually have the same price). For example, the country's GDP stood at $497 billion, and the latest figure made the country the third largest economy in South Asia after India and Pakistan. Bravo Bangladesh!
The writer is a Professor of Economics at Jahangirnagar University.
abdulbayes@yahoomail.com