Challenges on socio-economic front contrast growth story

SM Jahangir | Monday, 9 December 2019

Motivated to pursue economic salvation and better life through resilience and enterprising attitude, the Bangladesh people often brave various challenges such as bureaucratic red tape, infrastructure deficiency, corruption and an unfavourable climate.
When economic growth is officially shown at more than 8.0 per cent, they still witness massive unemployment, high number of poor people and widening resource disparity in society as reflected in various reports.
Analysis shows less-than-required level of investment, especially that of the private sector, shortfall in revenue earning, slower or negative growth in the country's merchandise exports, and uncertain in manpower export market have put the widely appreciated economic growth under pressure for the current fiscal year.
The country's gross domestic product (GDP) growth was calculated at a record 8.13 per cent in the fiscal year (FY) 2018-19. The Bangladesh Bureau of Statistics (BBS) recorded the growth at 7.86 per cent previous year before. Per capita income also increased to US$1,909 in the FY'19, from $1,751 in the FY'18, according to official statistics. Still, around one-fourth (24.3 per cent) of the Bangladesh people live below the poverty threshold.
Bangladesh has attained its interim graduation from the least developed country to middle-income status in 2018 and is on the path of achieving the status permanently in 2024 if it succeeds to meet certain conditions.
The government has projected the GDP growth for the current fiscal year (FY2019-20) at be 8.20 per cent. However, the World Bank's (WB's) GDP growth forecast for the year is 7.2 per cent and it attributed Bangladesh's 'strong growth' in 2018-19 fiscal year to rising exports and record remittances.
The International Monetary Fund (IMF) has projected a 7.8 per cent growth for Bangladesh in 2019. The IMF also projected that the GDP growth would be slower, at 7.4 per cent and 7.3 per cent in 2020 and 2024 respectively.
Some economists and analysts are skeptical about the GDP growth projection as, they argue, it does not match with other economic indicators such as credit growth, investment scenario, and imports. They sometimes find a mismatch between projected and actual data. The country is yet to see an end to culture of denial of certain realities on the economic front. More than two million new entrants are coming to the job market every year whereas less than one million of them are being accommodated.
A growing income inequality in society is another issue that has been identified as a major challenge affecting distribution of benefits of growth. Analysts think widening income inequality between the rich and the poor in the past two and a half decades has posed a threat to poverty reduction and accelerating growth.
The income share of the poorest 10 per cent of the population stood at 1.01 per cent of the total national income in 2016 which was 2.0 per cent in 2010, according to recent Household Income and Expenditure Survey by the BBS. By contrast, the richest 10 per cent of the population owned 38.16 per cent of the national income in 2016 which was 35.84 per cent in 2010.
In Bangladesh, wealth inequality is even worse. Estimates by the Center for Policy Dialogue (CPD) show that wealth inequality in terms of Gini coefficient - an economic term to gauge income or wealth inequality on a scale of 0 to 1, in which 1 represents perfect inequality and 0 signifies perfect equality - stands at a staggering 0.74, whereas the Gini coefficient for income inequality is still high at 0.48.
The CPD also revealed that income held by the poorest 40 per cent declined to 13.01 per cent in 2016 from 17.41 per cent in 1991. At the same tie, income held by the richest 10 per cent and 20 per cent of the population in Bangladesh increased from 23.3 per cent and 37.4 per cent in 1991 to 26.8 per cent and 41.4 per cent in 2016 respectively, said the CPD report.
Also, corruption, governance problem, poor institutional capacity and rule of law, inadequate skilled manpower and infrastructure bottlenecks are affecting the country's desired development progress.
Furthermore, poor governance and regulatory regime in the banking and other financial sectors, especially the ever-rising non-performing loans (NPL), rampant financial crime, sluggish capital market and higher costs of doing business are some of the impediments to promotion of investment in the country.
The banking sector has already been plagued by the NPL situation that has raised serious concerns.
The amount of NPL could be as high as Tk 1.12 trillion or 11 per cent of the overall outstanding loans and advances, according to figures from banking sources.
And the higher NPL rate has been taking a toll on the growth of credit to the private sector. The private credit growth came down to 10.68 per cent in August 2019 on a year-on-year basis from 11.26 per cent a month earlier, said the Bangladesh Bank's latest statistics. This credit growth was 2.52 percentage points lower than the central bank's target of 13.20 per cent for the first half of the current fiscal year.
Also, financial crimes, especially in the form of illegal capital flight or illicit outflow of money from Bangladesh, have been on the rise over the years. It happens in various forms especially through trade-invoice mismatches and that money is usually generated from 'criminal activities', tax evasion, corruption or smuggling.
According to the latest United Nations Conference on Trade and Development (Unctad) report, fund amounting to over 36 per cent the government's total tax revenue flew out of Bangladesh in 2015.
Another report of the Washington-based Global Financial Integrity (GFI) earlier showed that illicit capital outflows from Bangladesh were estimated at nearly US$6.0 billion in 2015. A Swiss National Bank report revealed that money kept in Swiss banks by Bangladeshis crossed Tk 40.91 billion as of 2017.
Despite some steps taken by the government, no progress has been visible in tacking such illegal capital flight or money laundering.
The country's capital market has continued to witness a sluggish trend over the years. Despite taking various steps by the government to revitalise the stock market, no progress has yet been visible in this connection.
The DSEX, the core index of the Dhaka Stock Exchange, dipped below the "psychological" threshold of 5,000-mark recently due to some factors including lack of investors' confidence. The DSEX had lost a cumulative 1,169 points or nearly 20 per cent in the past 10 months since January 24, 2019, when the index peaked at 5,950. The market capitalisation also shed Tk 598 billion during the period.
The slide began when the news emerged that fiscal 2019-2020 budget was passed in parliament on June 30, 2019 without any significant incentive for stocks and the market had hardly rebounded since then.
The economy is also facing challenge of mobilisation of internal resources especially tax and slowdown in the country's exports.
The overall shortfall in revenue collection under the National Board of Revenue (NBR) has been estimated to be over Tk 149 billion during the first quarter of (July-September) of the current fiscal year (2019-20).
Authorities collected nearly Tk 473.88 billion in tax revenue against the target of Tk 6225.94 billion during the July-September period.
However, the revenue collection for the Q1 of this fiscal registered only 2.66 per cent growth over the corresponding period of last fiscal. The revenue authorities are presumably under pressure to meet the Tk 3.25-trillion revenue generation target set for the current fiscal.
On the other hand, the country's export earnings also fell by 6.82 per cent during the July-October period of the current fiscal year, compared to the corresponding period of the last fiscal year (FY). The aggregate export earnings for the first four months of FY 2019-20 stood at US$12.72 billion, which also fell short of the strategic target of nearly $14.33 billion, according to Export Promotion Bureau (EPB). Earnings from the merchandise export during this period were recorded at $13.65 billion.
Such a drop in export receipts resulted from the decline in export value of readymade garment (RMG) products. Earnings from exports of RMG items, both knitwear and woven garments, declined by 6.67 per cent to $10.58 billion during July-October period of FY 2019-20 against $11.33 billion during the same period of FY '19.
Given the macroeconomic challenges, experts and development partners suggest that reforms in the financial sector, including mobilisation of revenue and doing business, are essential for desired economic progress.
Economists and experts insisted that to achieve its growth vision, Bangladesh should make focus on improving institutional capacity and enhance governance and regulatory regime in the financial sector.
There is an urgent need for rooting out corruption and malpractices from society, ensuring rule of justice, upgrading infrastructures, facilitating the ease of doing business and taking steps to boost the country's trade and investment for its sustained economic growth in the coming days.
SM Jahangir is Chief Reporter at The Financial Express.
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