Free economy and growth
Zafar Iqbal | Saturday, 21 June 2008
LAST year, The World Economic Freedom Index listed Bangladesh in the 143rd place among 157 nations sampled by it. This was notwithstanding the fact that Bangladesh had been fast liberalising its trade and seemed to be a front runner in this regard among its South Asian neighbours in the early '90s. But Nepal with its 121st position, Pakistan with the 89th and India with the 104th place, are seen as relatively freer economies today compared to Bangladesh.
The reason for this could be that while Bangladesh certainly took the move ahead of its neighbours in liberalising its external trade, it could not take up appropriate follow-up steps in the subsequent years and, thus, it did not attract expected foreign direct investments (FDIs). Thus, cumulatively in the list of economic freedoms, Bangladesh appears to have fallen behind.
But this is no ground for despair. Lacking institutions and capabilities to carry out substantive liberalisation throughout the economy, Bangladesh has otherwise taken the cautious path to decontrol. And this path is not without merits in the present context of Bangladesh. However, this does not exempt the policy planners from taking moves in right earnest for further freeing the economy in all respects because free economies are otherwise clearly better off than the regulated ones.
Until the late eighties, Bangladesh was an inward looking economy. During the period of its extensive trade liberalisation from 1991 to 1996, fiscal deficit declined, inflation rate fell, current account deficit declined, foreign currency reserves increased, real effective exchange rate depreciated and dependence on foreign aid significantly declined. The trade liberalisation policies have not been continued afterwards at the same speed, and the needed reforms in other areas were not carried out at the expected level. However, liberalisation of trade has otherwise added to the economy's gains. Thus, the import of machinery and raw materials at cheaper prices, as a consequence of trade liberalisation, gave a boost to internal production of all sorts and a particular thrust and competitiveness to the export-oriented industries. Bangladesh industrialisation and exports surged, as a result. These were the benefits of a more open economy and relaxation of regulations.
To reap the maximum advantage out of deregulation and decontrol, the challenges are mainly to attract investments, both local and foreign. Bureaucratic red-tape, excessive caution and sometimes even political obstacles, causing delays, need to be removed. The economic growth of any country can be faster if these disincentives can be eliminated for good. And prompt investment decisions could be helpful.
The reason for this could be that while Bangladesh certainly took the move ahead of its neighbours in liberalising its external trade, it could not take up appropriate follow-up steps in the subsequent years and, thus, it did not attract expected foreign direct investments (FDIs). Thus, cumulatively in the list of economic freedoms, Bangladesh appears to have fallen behind.
But this is no ground for despair. Lacking institutions and capabilities to carry out substantive liberalisation throughout the economy, Bangladesh has otherwise taken the cautious path to decontrol. And this path is not without merits in the present context of Bangladesh. However, this does not exempt the policy planners from taking moves in right earnest for further freeing the economy in all respects because free economies are otherwise clearly better off than the regulated ones.
Until the late eighties, Bangladesh was an inward looking economy. During the period of its extensive trade liberalisation from 1991 to 1996, fiscal deficit declined, inflation rate fell, current account deficit declined, foreign currency reserves increased, real effective exchange rate depreciated and dependence on foreign aid significantly declined. The trade liberalisation policies have not been continued afterwards at the same speed, and the needed reforms in other areas were not carried out at the expected level. However, liberalisation of trade has otherwise added to the economy's gains. Thus, the import of machinery and raw materials at cheaper prices, as a consequence of trade liberalisation, gave a boost to internal production of all sorts and a particular thrust and competitiveness to the export-oriented industries. Bangladesh industrialisation and exports surged, as a result. These were the benefits of a more open economy and relaxation of regulations.
To reap the maximum advantage out of deregulation and decontrol, the challenges are mainly to attract investments, both local and foreign. Bureaucratic red-tape, excessive caution and sometimes even political obstacles, causing delays, need to be removed. The economic growth of any country can be faster if these disincentives can be eliminated for good. And prompt investment decisions could be helpful.