The Financial Express

Stagnant private investment ‘poses a major challenge’

Experts say at CPD dialogue on BD graduation from LDC status, suggest admin overhaul

| Updated: March 12, 2018 15:44:24

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A "stagnant" state of private-sector investment as a ratio to GDP (gross domestic product) would stand as one of major challenges facing Bangladesh for smooth transition from the LDC status.

Speakers at a dialogue Saturday in the city made such observations, and they called for an overhaul of the administrative machinery and smoothing the ways for both domestic and foreign investments.

They noted that though the contribution of the public-sector investment to the gross domestic product (GDP) keeps increasing, the situation of the private sector remains stagnant-around 22 per cent for a decade.

It needs to be enhanced to cope with the challenges Bangladesh might face once it graduates to developing country, they said in one of their major recommendations for graduation preparation.

Calling upon the government machinery to bring necessary changes in its policies to create an investment-friendly climate, they emphasised coordinated efforts to reduce the cost of finance, structural reforms to ensure financial-sector governance and proper screening for driving the private-sector investment into the productive sector.

The predictions and observations came at the third session titled 'Graduating in a Brave New World' of CPD (Centre for Policy Dialogue) public dialogue on 'Bangladesh's Graduation from the LDC Group: Pitfalls and Promises'.

Chairing the session, former Governor of Bangladesh Bank Dr Mohammed Farashuddin said Bangladesh remained almost stuck in terms of private- sector investment-to-GDP ratio over the years, which is a major concern.

He suggested that the government should find out policies as to why the private sector is reluctant to come in a much bigger way and why illicit financial flows cannot be stopped.

It's shameful, the banking expert said about the failing to stop fund flight and roping the money in productive investment.

"If we can stop it, the money will be invested here and there will be more tax revenues and the private sector will grow. There must be some missing links or rigidity because we don't have the right monetary policy, or is the appreciation of local currency hurting us more than the policymakers aware of," he told the audience.

The ex-central bank governor said the country needs to examine the coordination between fiscal, monetary and exchange policies.

Citing intentional currency depreciation by the country's trading competitors like India, Indonesia and Thailand, he said the conscious move helped them get their export grow more than Bangladesh's.

"I have a suspicion that we must have to look at it," he said.

Talking about the possible economic shocks, Director of Policy Research Institute (PRI) Dr. Ahmad Ahsan said the RMG (readymade garment) industry runs with little profit margin of about 2.0 or 3.0 per cent and then to face 7.0 or 8.0 percent tariff increase would be quite a shock for them.

He said private-sector investment declined in recent times, sending a bad signal to FDI (foreign direct investment). Suggesting improving the investment climate, he said China's outbound investment worth $100 billion flows across various parts of the world.

He posed a question: "Why the money (Chinese investment) is not coming to Bangladesh? Why do we get only $2.0 billion whereas Vietnam and Indonesia get $8.0 or $9.0 billion?"

Citing infrastructure deficit and political uncertainty as two major reasons behind the reluctance of foreign investors, he particularly emphasized maintenance of infrastructure and proper urban development.

While presenting a paper, CPD Research Fellow Towfiqul Islam said Bangladesh, while preparing for LDC graduation, should not only review the existing policy regime but also accelerating implementation of policies, plans, acts, strategies and initiatives.

He said improving investment environment through financial-sector reforms, tax and legal reforms, better governance and business regulations are also important.

Keith Thompson, team Leader, Growth and Private Sector Development, DFID Bangladesh, and CPD Executive Director Dr Fahmida Khatun, among others, also spoke at the meet.

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