Dr KAS Murshid, the team leader of the taskforce tasked by the post-uprising government to reframe economic strategies, justifies deferment of the country's graduation from the LDC club in the current context as he thinks haste could do more harm than good.
A former director-general of Bangladesh Institute of Development Studies (BIDS), Dr Murshid heads the 12-member taskforce the interim government formed in September, after the August-5th changeover, to work out strategies for the government to help attain anti-discriminatory sustainable development.
The taskforce on 'Re-strategising the economy and mobilising resources for equitable and sustainable development' is likely to submit its first report by the end of December 2024. Its findings are aimed at achieving desired results in the next two years to 2026.
In an exclusive interview with The Financial Express, Dr Murshid talks on the entire spectrum of economic challenges facing the country which the taskforce is tasked to address for a breakthrough in keeping with the changed contexts brought forth by the student-people uprising.
Bangladesh is set to graduate from LDC (least-developed country) status in 2026. His opinion was sought if the country is prepared for this transition.
Dr Murshid's answer was straight: Honestly, no - not under the present circumstances. If you had asked me a few months ago, I would have said yes! Our economic circumstances have changed, as you are aware. Now, I feel compelled to stress that Bangladesh should delay its graduation. While remaining in the LDC category with our current economic size is indeed embarrassing, especially as the only country in Asia (except Afghanistan and a few Island States) left in this group, rushing into middle-income status could be detrimental to our economy. The benefits of tariff preferences and external support are critical for us right now.
FE: What are the primary economic challenges Bangladesh is currently facing?
Dr Murshid: Debt repayment and foreign-exchange reserves remain the major concern. Our debt burden is visible and growing, and repayment challenges are looming. While our repayment history has been strong, the current economic pressures make it uncertain if this can continue.
We also face a severe foreign- exchange crisis, with insufficient reserves and limited growth in foreign -exchange sources. A quick wayout cannot be found - we will need to be patient and disciplined.
To another question as to how the geopolitical landscape affects Bangladesh's access to external funding, he said, "Geopolitics plays a crucial role. Earlier, we had hopes of receiving major resource flows from development partners in the face of significant geopolitical re-alignments. However, with the change in US politics, this support may diminish - although I do not think there will be any major shift in US policy towards Bangladesh.
That said, multilateral development banks like the World Bank and the ADB are likely to extend some support. Bangladesh must actively explore bilateral and multilateral funding sources to navigate this period along with a greater role of the EU and Japan.
FE: Do you think recent interest-rate hike can tame inflation?
Dr Murshid: The 9/6 administered interest-rate system has caused significant damage to the economy. It failed to bring investments and stifled the financial system. Interest rates must be market-driven to ensure sustainability and inflation control. Whether the current interest rate is close to the market-equilibrium rate or whether it is too high is a matter of investigation. The Bangladesh Bank should tweak this number to balance supply-demand changes.
The interest rate, however, is just one tool to tame inflation. In addition, fiscal policy will have to play its due role - which it currently does not. At the heart of the matter, however, are supply/supply-chain issues and foreign-exchange shortages which the Bangladesh Bank cannot solve itself.
FE: What are the aspects the government should focus to contain inflation, generate employment?
Dr Murshid: Micro, small, and medium enterprises are crucial to our economic fabric. Their problem isn't interest rates but access to finance. We must leverage technology, simplify processes, and reduce entry barriers to support this dynamic sector.
High costs and corruption in licensing and registration processes are major barriers to investment. Moving to a paperless, digital system is essential to reduce these hurdles. The least we can do is reduce the governance burden that the private sector, especially CSMEs, faces to stimulate the supply side.
FE: Energy pricing is a contentious issue. What reforms do you suggest?
Dr Murshid: Our energy-pricing policies are arbitrary and lack a rational framework. We need a long-term strategy to align domestic energy prices with global trends gradually over time. This will attract investment and promote energy efficiency.
Energy pricing in Bangladesh is highly segmented and controlled by lobbies, which is unacceptable. While global energy markets are ruled by a cartel - which I think is a shame-- we have no choice but to accept the broad world market-price paradigm in our pricing policy, as I already said.
Do you foresee any political risks to the taskforce's recommendations?
Dr Murshid: Unfortunately, yes. Policy stability is a significant concern. If a new political party takes over, there's a risk of policy reversals, which could deter investment and disrupt ongoing reforms. That's why it's essential to establish legally binding mechanisms to ensure continuity.
Asked how he proposes ensuring transparency and accountability in implementing reforms, the economic-rejig-taskforce chief said, "We need a robust feedback and monitoring system. For example, citizen monitoring boards can be established, with dashboards providing real-time updates on project progress. Publicly accessible platforms that can incorporate a "hall of fame and shame," for example, can encourage accountability among officials.
FE: In conclusion, what is your message to policymakers and stakeholders?
Dr Murshid: Transitioning to middle-income status is a significant milestone, but it must be achieved sustainably. Rushing into it without addressing our structural challenges could lead to long-term damage. We need to focus on prudent policy-making, targeted investments, and institutional reforms to secure our economic future.
Our broad economic-development strategy should be to imitate the success of the Asian Tigers and explore/exploit partnerships with lead countries like Japan, South Korea, and China.
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