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New year comes with a mix of expectations, challenges and opportunities. But nothing big can be delivered in a single year unless there are some measures already in place.
In Bangladesh, advent of the year 2019 coincides with a new government marking the continuation of the ruling party for the third consecutive term. This implies that there will be no disruption in the ongoing development projects, and businesses are likely to find a regime whose policies and programmes are familiar to them.
It is visible that Bangladesh economy has begun its journey in the new year with many bright macroeconomic indicators like low rate of inflation, favourable agriculture output, modest investment trend, robust trade growth, increased collection in tax revenue and active labour force.
Coupled with these positive notes and indicators, there are a number of downsides too that got carried from the past years. Trouble in the financial sector, exaggerated costs in some development works and lack of decent jobs are the areas that require serious attention to make an optimal use of a regime backed by positive economic indicators.
The financial sector, banking sector to be precise, has been going through a series of irregularities and scams over the years in the country. Rise in default loan is a critical indicator. Unregulated financing from state-owned commercial banks (SOCBs) have already rendered them highly loss-making. Nevertheless, little efforts were visible in the past years to check the irregularities.
Not that the SOCBs' financial condition deteriorated suddenly or in the last couple of years. To make the banks competitive, a comprehensive restructuring plan was undertaken during 2003-2008, which did not materialise. So, trouble with these banks continued and also intensified despite some scattered moves to fix the problems.
A long list of irregularities may be found to show the fragility of the financial sector. But these are not unknown to the government and what is critical is the acknowledgement of the problems in order to take corrective steps. Economists, experts and businesses have expressed similar opinions. While misappropriation of funds from banks through massive irregularities may benefit a few, it raises the cost of doing business for many and puts millions of depositors at risk.
Good governance in the financial sector is a must to make it secure. Currently, the contribution of financial intermediation in Gross Domestic Product (GDP) is only 3.50 per cent of which the banking sector alone contributes around 3.0 per cent.
Financial depth of the country has improved moderately in the last decade. For instance, the broad supply (M2) to GDP ratio reached above 0.65 in 2017 which was around 0.59 in 2010 and 0.43 in 2000. Private credit to GDP ratio also increased to around 0.48 in 2017 from 0.41 in 2010 and 0.22 in 2000. Generally, financial depth indicates the financial sector relative to the economy. It is the combined size of banks and financial institutions, and financial markets and the size compared with a measure of economic output.
The new government may consider to form an independent commission to review the situation of the financial sector. The commission may also outline required remedial measures to curb irregularities.
Another area that demands serious attention of the new government is the implementation of development projects. Some of these have been completed, and work on some mega projects is going on. There are allegations of unreasonable cost escalation. Excessive cost enhances the financial burden on the economy and reduces resources for many other areas.
Some vested interested groups are active for rent seeking from development projects. This is one major reason for cost escalation, besides there are some valid reasons like hike in construction materials and delay in land acquisition. It is a big challenge for the policymakers to contain rent seeking as it is assuming a menacing proportion.
Creation of jobs, especially decent jobs, is probably the biggest challenge in not only the new year but in the next five years for the new government. Official unemployment rate is quite low in the country, only 4.3 per cent as recorded in FY17. But large number employed persons are deprived of decent jobs as they are working in bad, risky and unhealthily conditions with inadequate facilities.
Ensuring decent jobs for all is quite challenging and time consuming. Nevertheless, long-term plan needs to be there to move ahead in this direction. It is a strong indicator of the effectiveness of economic development process. It also helps to reduce the income disparity in the long-run.
Finally, like the immediate past year, 2019 is not an election year and there is ample scope to take some strong reform initiatives to revise the wrong policies and steps in the economic front. The first year of the incumbent government is critical to set the future course of socio-economic development. Prudent policymakers are not in a position to miss the opportunity.