1. We are observing that the Bangladesh economy is showing 'signs of recovery' even after COVID-19 pandemic. Do you think that the economy will fully rebound within this FY2021 as the govt. targets an 8.2pc GDP growth?
Finance Minister (FM): You are right. The Bangladesh economy has been showing signs of recovery. It is true that the global lockdown and economic stagnation as well as a 66-day public holiday in Bangladesh due to the outbreak of COVID-19 initially led to a disruption in the country's economic activities. Our economic growth was 5.24 per cent which was unanticipated as our gross domestic product (GDP) growth was 8.15 per cent in the previous year. However, our growth was much higher than most other economies' in South-East Asian region. Recently, the Washington Post has published an article titled, "Bangladesh economy shows early signs of pandemic recovery" where the economic policy and leadership of Bangladesh have been applauded.
Actually, our government instantaneously addressed the crisis and began overcoming its potential adverse effects on the economy, under the direct guidance of Hon'ble Prime Minister Sheikh Hasina. She announced a comprehensive stimulus and economic recovery programme with 23 packages sequentially amounting to Tk 1.24 trillion, equivalent to 4.44 per cent of our GDP.
These stimulus packages have been designed in a planned and coordinated manner, and the objective is to ensure that maximum number of people in the country benefit from it. The current economic trend in Bangladesh reflects that Bangladesh has weathered the COVID-19 economic shocks well. Exports have shown a better than expected performance since July 2020 despite the continuation of the COVID-19 in major export destinations. Remittance has shown a remarkable growth rate of 33.5 per cent during the first eight months (July-February) of the current FY. Foreign exchange reserve has grown to a record US$44 billion by the end of February 2021. The current account balance posted a healthy positive balance of US$4.32 billion in July-December 2020.
Again, despite the pandemic, food grains production in FY2019-20 was 4 crore 15 lakh 8 thousand metric tons, with a growth of 1.3 per cent over the previous FY. The use of gas and electricity has increased in recent months as compared to that in the same period of the previous year, which reflects an increase in industrial activity. Again, container movement through the Chittagong Port has also increased. All these are indicators of the economic recovery that is happening in the country at the moment.
We had projected the GDP growth rate at 8.2 per cent during budget preparation for FY2020-21, given the positive vibe in our economy. However, given the pandemic situation, we have recently revised GDP growth downward to 7.4 per cent to be more pragmatic and aligned with the 8th Five Year Plan projections. We are confident that our economy will fully rebound in FY2021, and we will be able to achieve this year's (FY2020-21) revised GDP growth target of 7.4 per cent.
2. Some foreign development partners and local think-tank were very critical of Bangladesh's economic growth in the current FY2021. Why is the difference between their projection and yours?
FM: I am not aware whether any development partner or local think-tank has been very critical about economic growth projection in the current fiscal year. Rather what I am informed is that World Economic Outlook of IMF published in October, 2020 has identified 22 countries only including Bangladesh, which will have positive growth this year. According to IMF, Bangladesh is one of the three countries in the whole world, which will have highest positive growth amidst this pandemic. Furthermore, Asian Development Outlook, 2020 has suggested that out of 48 countries only 12 will see positive growth, of which Bangladesh will achieve highest growth of 7.1 per cent in FY2020-21.
I have already said that due to the adoption and implementation of the massive stimulus program of BDT 1.24 trillion, Bangladesh's economy has started showing signs of early recovery from the COVID-19-induced economic impact. We are confident enough that we will achieve this target. I expect that the think-tanks which you are mentioning will revisit their projections in view of our past performances acknowledged by global researchers and think-tanks.
3. Many local economists and think tanks believe that Bangladesh's economic growth is 'without investment and employment'. The uneven growth is also enhancing the inequality and disparity. So, the growth will not be sustained and SDGs will not be achieved. Do you have the same opinion? If not, can you please clarify-why?
FM: I have already mentioned how the global financial institutions and research organisations recognized the achievements of Bangladesh over the last decade. Very recently, on March 3, 2021 Wall Street Journal published an article, titled, "Bangladesh is becoming South Asia's Economic Bull Case". The article has found Bangladesh's exports booming while those of Pakistan and India have lagged behind. Our resilient economy with consistent growth was recognized by the Committee for Developing Policy of United Nations on 26 February, 2021. They have officially declared their final recommendation for Bangladesh to graduate from LDC category to a developing economy and eventually the UN General Secretary, António Guterres, has congratulated Bangladesh for this achievement. I do not see our growth to be uneven; otherwise we would not be able to fetch our nation this glory.
Furthermore, I am eager to let our people know that our investment-GDP ratio increased to 31.7 per cent in FY2019-20 from 26.2 per cent of FY2007-08. According to Inclusive Development Index of 2018, prepared by World Economic Forum (WEF), Bangladesh was ranked 34th, which was far ahead of our neighboring economies. In case of employment, despite the reduced employment elasticity with respect to GDP growth, we have added more than 8.0 million jobs in five years under the 7th Five Year Plan (FY2016-FY2020). So, I do not agree with them who say that our economic growth is 'without investment and employment'. All over the world our economic resilience and inclusive growth have been praised. Our government cannot undermine the efforts of the farmers, garment workers, overseas workers, without whom we could not have successfully transformed our economy to a developing and lower-middle income one in one decade.
4. The coronavirus has shattered the world economy. Bangladesh has also been in trouble. However, our economy is doing well than others. Amid this pandemic, which are the main drivers of economic growth in Bangladesh now?
FM: Amidst the global pandemic and economic downturn, Bangladesh had come out to be a successful country both in containing the spread of virus and having the economy back to the previous growth trajectory. We have been successful due to several reasons, of which, the foremost is our extraordinary leadership of Hon'ble Prime Minister Sheikh Hasina, who has tackled this unprecedented situation of our lifetime from the forefront. Each and every decision made by her placed her ahead of maximum world leaders. At the very beginning of the pandemic she declared her 31 Instructions for the citizenry, contained the virus, reopened the economy in appropriate time, and declared the stimulus packages at the earliest, initiated vaccination faster than most other countries. All her timely and precise decisions were the key drivers for overall economic recovery of Bangladesh. Second factor is the resilient, hardworking, honest, compassionate people of our country, who rowed the economy in synchronization with the skipper, Jononetri Sheikh Hasina. Thirdly, our agricultural sector, including fisheries and livestock played pivotal role in ensuring food safety of the people and revived the rural economy. Fourthly, the stimulus package relieved the business groups, from large farms to petty micro-enterprises, which eventually helped the economy to boost again. Fifthly, exports and remittances are two important drivers of our economy, and despite the continuation of the corona pandemic we have done well in both these areas. The inward remittances have huge positive impact on our rural economy to sustain the domestic consumption demand, which has multiplier effects on other economic sectors, especially the small and medium industry. Finally, our expansionary fiscal policy and monetary policy have created enough liquidity to sustain the private sector credit flows along with increased government expenditures which would ensure our economic growth.
5. What are the areas that Bangladesh handled well and what areas will need further attention? Do you see any challenges here?
FM: The COVID-19 economic recovery programme and the stimulus packages have been designed in a planned and coordinated manner, and the objective was to ensure that majority of people in the country benefitted from it. The priority areas under the programme are:
(i) Health - to protect people from COVID-19 pandemic
(ii) Food - to ensure food security for the people by enhancing agricultural production
(iii) Employment - to protect existing jobs and to generate new employment
(iv) Social protection - to protect marginalised people by expanding social safety net programs.
We have handled these major areas very well which were directly impacted by the Covid-19 pandemic. Hence, we had been recognized by Bloomberg's Covid-19 resilience ranking report in December, 2020, where Bangladesh secured 20th position, putting a number of developed countries behind us. However, we are not complacent about our achievements and we are regularly monitoring the performance of the stimulus packages. Except the package related to low interest loans to SME sector industries and services organizations, the progress in implementation of other packages has been satisfactory. Bangladesh Bank has been taking measures, such as, motivating the Scheduled Banks to accelerate the distribution of loans towards cottage, micro, small and medium industries.
We have been continuously identifying the new areas that need attention, for which we had organized a dialogue series in November and December to get suggestions and recommendations from stakeholders and research think-tanks. On the basis of their recommendations, the Government has recently adopted two new packages, which are - (a) extension of low interest credit through microcredit institutions, to boost the rural economic activities and (b) extension of social security protection coverage for old age allowances and widow and divorcee women allowances in 150 ultra-poor Upazillas to cent percent.
In my view, the main challenge for us will be external one: the possibility of slower global economic recovery. However, in the event of slower global economic recovery, the government will make every effort to sustain its original growth trajectory.
6. The revenue collection, export earnings, investment inflow, employment generation and budget expenditure have had a shortfall to meet the targets this year. How do you manage those things to uplift the economy to a targeted level at the end of the fiscal year?
FM: In the current fiscal year (FY2020-21), the revenue generation, government expenditure, export earnings, and investment inflow were projected at BDT 3,780 billion, BDT 5,680 billion, US$ 41.0 billion and 33.5 per cent of GDP respectively during the budget preparations. But due to COVID-19, we are in the position to have some shortfall against the target. The government has taken several stringent measures including implementation of 23 incentive packages to recover the economy from COVID impacts. The main export driver, RMG sector, has been facilitated with several measures, including incentives and low interest loans. The Annual Development Programme has not been reduced in size and the projects are receiving funds in appropriate time. Hence, fiscal expenditure would be boosted in second half of the fiscal year. Revenue generation has been enjoying around 4 per cent growth despite the effect of pandemic and reduced tax rates for supporting the businesses. The domestic resource mobilization will be accompanied with the external resources, as we have received budgetary support from multilateral development partners to fight Covid-19. We are in a position to increase our external debt, as we are one of the lowest debtor countries in the world. Thus, we will have enough fiscal space to match the expenditure target. Overall, I am optimistic enough that Bangladesh will achieve the targets.
7. The government has set a target to boost the investment-GDP ratio to 36.99 per cent under the 8th five-year plan from the current level of 31.75 per cent. Is it an ambitious target? If not-- can you please clarify which policies and actions of the govt. would swell the investment?
FM: In FY20, the investment-GDP ratio was 31.75 per cent and the budgetary target for FY21 is 33.5 per cent. The government has set the target of investment-GDP ratio at 36.99 percent at the end of 8th Five Year Plan. If you look at the performance during 7th Five Year Plan implementation, we have exceeded our Public Investment target of 7.8 per cent and achieved 8.12 per cent in FY2019-20. Overall investment-GDP ratio grew from 29.7 per cent to 31.75 per cent in five years, which is remarkable despite the Covid-19 pandemic in the terminal year of the 7th Plan. We are expecting the private sector investment to enhance enormously as soon as our hundred Special Economic Zones and 28 High-Tech Parks will be potentially filled with new production plants.
Our government has always been pro-business and pro-private sector. We will take the necessary and consistent policies to support in order to pull the private investments, both domestic and foreign direct investment, Our holistic strategies are: prudent macroeconomic management, ensuring stable inflation rate, maintaining stable and competitive exchange rate, ensuring adequate private sector credit, development of essential infrastructure, such as power, transport and communication through efficient public investment and simplification of regulations and procedures. Based on our past experience and our present policy support for the private sector, I am optimistic about achieving 37 per cent investment-GDP ratio by FY2024-25.
8. Millions of people lost jobs especially in the informal sector due to the COVID effect. Nevertheless, the govt. targets 11.33 million job creation in next five years, 2.26 million on an average every year, in the 8th FYP period. Is it really possible? Please elaborate-how?
FM: It is not true that millions of people lost their jobs. However, during Covid-19 public holidays some jobs, especially in informal sector, were affected. But as soon as the economy was reopened slowly during July, at the beginning of current fiscal year, the informal sector has gradually rebounded to its earlier position. The hawkers, rickshaw pullers, street vendors, day-labourers, hairdressers, small traders, hotel and restaurant employees, people related to tourism and all other low income group people are back in the mainstream economy now.
Yes, as you said, we have envisioned generating 11.33 million jobs in next five years against 7.8 million new entrants in labour force during 8th Five Year Plan. The 8th FYP has adopted the strategy for accelerating pro-poor and inclusive growth. The strategies include promoting labor-intensive, export-oriented manufacturing-led growth, infuse the dynamism in the MSMEs, strengthen modern service sector, promoting ICT based entrepreneurship and strengthen overseas employment. We are relying on our hundred Special Economic Zones and the High-Tech Parks, which have potential to generate more than 10 million jobs. All our policy efforts are directed towards bringing investments in the SEZs to create employment. Simultaneously, we have confidence from the near past experience that we can send 0.6 million expat workers yearly to the overseas labour markets.
Furthermore, we should keep in our mind that we are now in the phase of demographic dividend and our working age population has been increasing and will increase up to 70 per cent until 2041. According to our Multi-Indicator Cluster Survey (MICS), 2019 our median age population is only 25. We are having a large pool of young energetic population who are keen to develop our country under the statesmanship of Hon'ble Prime Minister Sheikh Hasina. I believe if we can implement the policy strategies of the 8th FYP we will be able to create more than 11 million jobs and absorb those unemployed owing to COVID-19, the underemployed people and to reap the full benefits of the demographic dividend in next five years.
9. The govt. has taken some steps for ensuring governance. However, financial sector has been suffering with several scams and irregularities. Are you thinking of any fresh policy or measures to establish governance there?
FM: To uphold the interest of the depositors and to ensure discipline in the financial sector, the central bank formulates various policies and issues guidelines, directives and circulars for banks and Financial Institutions (FIs). Off-Site Supervision and On-Site Inspection are carried out by the central bank on a regular basis to ensure good governance in banks and FIs. Moreover, the central bank takes prompt corrective measures for any irregularities detected at banks and FIs. We successfully reduced the NPL ratio to 8.88 per cent from 10.30 per cent in last two years. If you can recall, in 2006 the NPL was 13.15 per cent. Hence, we should acknowledge that the inherited problems in banking sector have been addressed in recent years.
Previously, in 2013 the Bank Companies Act, 1991 was amended to legally enforce the corporate governance in the banks. It includes the rules and responsibilities of the board of banks, formation of risk management committee, internal control, internal audit and compliance committee, setting limit for related party transaction of banking companies, prior approval of Bangladesh Bank in appointing or removing director or managing director/CEO in the banks.
However, in 2019, we formed a high-level committee, headed by a Deputy Governor of Bangladesh Bank including senior officials of Bangladesh Bank and Financial Institutions Division of the Ministry of Finance to review the 5 banking related laws to enhance governance in banks and FIs. These laws are (A) The Bank Companies Act, 1991, (B) The Money Loan Court Act, 2003, (C) The Financial Institutions Act, 1993 (Proposed `The Finance Companies Act, 2021), (D) The Negotiable Instrument Act, 1881, and (E) The Insolvency Act, 1997. Already, we have revisited Banker's Book Evidence Act, 1891, to make it compatible with modern day digitalized banking system. It will be placed before the National Parliament in next session. International best practices and good governance in banking have been taken into considerations while reviewing the above acts with a view to upholding the corporate governance and discipline in the financial sector of Bangladesh. We are working hard to ensure discipline and good governance in the financial sector that ultimately enhances people's confidence on financial sector and brightens the image of the country abroad.
10. Huge expenditure for stimulus packages and other spending are creating pressure on the national budget. Do you think the next year's budget will be under pressure amid those new expenditures? How will you accommodate the expenditures in the current FY2021 as well as in the next FY2022 budget?
FM: No. I do not think that the budget will be under pressure amid the stimulus expenditures. This will be clear if you understand the nature of the stimulus packages. The packages are segregated in short, medium and long-term programmes, which will not require funding from one single year's budget, rather the funding will be rolled out in consecutive budgets.
Furthermore, the Government has so far received budgetary support of US$ 2.03 billion from the development partners, such as, World Bank, Asian Development Bank, AIIB, JICA, and International Monetary Fund to boost its capacity to finance economic recovery. The Government is negotiating further budgetary support with a number of development partners to increase its capacity to address possible future challenges. Besides, we are also trying to mobilize domestic resources through NBR and other windows, such as, government bonds.
Due to pursuance of prudent fiscal policy and efficient budget management by the government, we have been able to maintain the budget deficit at a fairly low level, or around 5 per cent of GDP. Despite the coronavirus pandemic, we had been able to keep the budget deficit within 5.5 per cent of GDP in FY2019-20. In FY2019-20, the budget deficit including grants was 5.38 per cent of the GDP and in the current FY2020-21 the target is 6.0 per cent of the GDP. Eventually, there would not be any extra burden on budgetary allocation; in contrast we will have fiscal spaces to take up additional stimulus packages if needed in future.
11. What types of plans and steps are you thinking of in order to tackle the COVID aftermath challenges?
FM: To address the crisis and overcome its potential adverse effects on the economy, Hon'ble Prime Minister Sheikh Hasina has personally guided the formulation of an overall program with short, medium, and long-term targets. This program has four main strategic aspects. The first strategy is to increase government spending. In this respect, priority has been given to creating jobs and discouraging unnecessary spending. The second strategy is to provide low-interest credit facilities through the banking system to industries and business enterprises to revive economic activities and increase the competitiveness of entrepreneurs at home and abroad. The third strategy is to increase the scope of the government's social security programmes to protect the ultra-poor and the low-income groups. The fourth and final strategy is to increase money supply in the market. However, this strategy is being implemented with utmost caution to keep inflation under control.
Considering the recent trend in Bangladesh's economy, there is no doubt that the stimulus measures adopted by our government have so far played a highly effective role in countering the adverse economic shocks of COVID-19, and is expected to play a similar role in facilitating quick economic recovery in the coming months. It is expected that the commencement of the application of vaccines in our major export markets will help quick resumption of full economic activity in those countries, thereby boosting our exports. Progress in our agriculture sector will also accelerate, as we are laying emphasis on agricultural incentives, subsidies on inputs, and low interest credit/subsidies to farm mechanization.
I am confident that these will continue to play a similar role in the aftermath of COVID-19. However, in the event of slower global economic recovery, the government will make every effort to stay on its original growth trajectory. We believe that stimulus packages will be the key, and therefore, if needed the government will lay greater emphasis on increasing the volume and magnitude of its stimulus measures.