Economic outlook in 2007-8

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Enayet Rasul
The Bangladesh economy grew above 6 per cent in the financial year 2006-7. This was a matchless record for the economy has been averaging growth of 5 per cent or a little above in the present decade . The above 6 per cent growth amid all the politically induced shocks received by the economy, was no doubt a highly inspirational development. Analysts took the higher growth momentum as a clear sign of the economy coming of age or its nearing take-off stage.
It was perhaps based on the optimism of the relatively higher growth in the last fiscal year that the Adviser for Finance projected at least a 7 per cent growth of the economy in the current fiscal year. Some donors, including the Asian Development Bank (ADB), are also upholding the prospect of growth in the neighbourhood of 6 per cent in the current year as an attainable target.
But other hard-headed observers of the economy's behaviour in recent months hardly share such optimism. They find in the reduced volume of business activities, sharply declining rate of new investments, falling rate of bank credits and conspicuous signs of dwindling money circulation, the symptoms of an economic slowdown when a 7 per cent growth rate would be reflected in more dynamism of the economy in different areas. These watchers of the economy are rather pessimistic about the economy's performance in the current year. They fear not only the projected growth not materializing, they are visualizing a shocking reverse in the growth rate for the first time in years. They apprehend that the growth rate could even slide down to 2 per cent or less this year while some others are visualizing no growth or even minus growth. Let us hope that these pundits are proved wrong and in a major way. But the wishing has nothing to do with the realities at field level which seem to support the contention of the naysayers.
New investments are the keys to economic growth in all situations. Economic growth occurs mainly when the private sector of a country comes forward enthusiastically to set up new industries or services. The new investments activities by the private sector lead to greater volume of economic activities and expand the base of the economy . Hence the economy grows and creates more and more economic opportunities for people helping them to find jobs and enjoy incomes. But the vital investment operations from the private sector are taking a nosedive in the Bangladesh context.
New private sector investments in this country are reflected through bank borrowing or banks' credit growth because banks are the main sources of funds for the entrepreneurs in the absence of a well developed capital market. The entrepreneurs here do not rely entirely on banking funds to set up new enterprises or expand existing ones. They also invest their own money as equity participation along with credits received from the banks. But not only the local private sector investments are seen to be stagnating, the rate of foreign investments are also reported to be notably declining. Growth in bank credits during January-May of the present years was only 2.03 per cent in contrast to 10.01 per cent growth in such credit in the previous year. The big drop in the credit growth of the banks is a tell tale sign of the very substantially lowered investment operations.
One may contend that the expenditures in the public sector are high. The same are likely to shoot even higher with the flood recovery plan to be taken up soon. From feeding people to repairing infrastructures, a great deal of spending would be undertaken by the government. The same would put money into people's pockets, create some purchasing power and lead to temporary employment creation of sorts for workers to be engaged in repair activities and the like. A big part of the public spending would be directly consumptive such as distributing various kinds of dole to the flood victims. But such spending in the public sector do not add up and create physical capacities of a sustainable nature such as industries and services generating regular employment and income. Thus, the public spending in the current year will hardly create what is understood to be 'economic growth'. In the absence of growth generating investments in the local private sector and a similar emptiness regarding investments from foreign sources, the net of investment is likely to remain very modest or, as speculated, none at all or even on the minus side in 2007-8.
The challenge for the government, therefore, is essentially one of winning over the confidence of the business classes. Generally, businessmen should be allowed to get back a sense of ease in circulating their monies or engaging in business operations without fear. Only then the volume of investment that is seen to be nosediving may be pulled up to create some hope that economic growth prospects would not be so barren. Some businessmen were targeted by the anti-corruption drive. But the scare has spread among too many of them and they are considering it wise and safe to lay low or to wind up their operations wholly or partly on actual ground in some cases or perceived ones in the others. This fear psychosis must be overcome and in this the government has the greatest role to play. It is not that people are for calling off the anti-corruption drive in relation to businesses. They do not mind that corrupt businessmen should be subjected to the legal processes but they expect this to be done with a lot of care so that businesses in general do not take a fright leading to a sharp decline on the whole in business activities. With the good making of policies and their neat execution, it is possible for both the anti-corruption drive and businesses to flourish and co-exist.