'Mobilising development financing will be core challenge'

Mr Manmohan Parkash, the Country Director of Asian Development Bank (ADB) in Bangladesh talks to the Financial Express (FE) on the country's macroeconomic trend and risk factors. He also sheds light on possible challenges Bangladesh may face once it graduates from the category of the Least Developed Countries (LDCs). Following are the excerpts of his interview:

Financial Express (FE): How do you evaluate the ongoing macroeconomic performance of the country?

Manmohan Parkash (MP): The macroeconomic performance of Bangladesh is strong and stable. Over the last five years, the economy has grown by 7.0 per cent on average per annum and recorded 8.1 per cent growth in fiscal year 2018-19, fastest in the Asia-Pacific. ADB predicts Bangladesh to sustain the highest growth in the Asia-Pacific at 8.0 per cent in next year. The impressive GDP (gross domestic product) growth is led by higher exports and remittances. Continued political calm, improved power supply, and higher growth in private sector credit facilitated the fastest economic expansion in Bangladesh since 1974.

FE: What are the major driving forces of the country's growth?

MP: Several driving forces have contributed to the strong and stable economic growth.

Industry grew by 13.0 per cent in FY19 on robust performance in manufacturing; strong production in large and medium-sized industries; and electricity, gas and water supply subsectors; as well as higher investment. Strong private consumption was underpinned by a rise in remittances. Public investment also contributed to the growth, reflecting substantial progress in implementing large infrastructure projects, notably the Padma Bridge and Dhaka Metro Rail.

Export growth also surged to 10.60 per cent in FY19 from 1.70 per cent in FY17. Garment exports, accounting for over 84.2 per cent of the total exports, recovered from only 0.20 per cent growth in FY17 to 11.50 per cent on stronger demand from the USA, EU countries, and new markets like Japan, India, Canada, PRC and Australia. Imports of capital goods, petroleum products, garments raw materials, construction materials and fertilizer, and consumer goods such as, spices, milk powder and pulses grew strongly. Remittances grew strongly by 9.60 per cent to reach a record $16.4 billion in FY19, above the previous highest level of $15.3 billion in FY2015. It reflected more favourable exchange rate, and measures to foster money transfer through official channels. Also, the central bank reduced the required cash reserve ratio by 1.0 percentage point to 5.5 per cent and lowered the repo rate by 75 basis points to 6.0 per cent in April 2019. This reduced pressure on the call money rate, and forestalled any marked increase in bank lending rates, thereby supporting private sector growth. All these contributed to achieving higher growth.

FE: What are the weak points or vulnerable areas of the economy and how to fix these?

MP: Export diversification, increased revenue mobilisation and reducing the cost of doing business are areas requiring further attention. The implementation of new VAT law will help attain budget target revenue. Reforms to attract private investment and improve investment climate can be expedited.

Continued focus on human capital development and infrastructure improvement will help. Public investment is expected to pick up as the government continues to emphasise infrastructure development, with about 60 per cent of its annual development programme (ADP) budget allocated for transport, energy, water, urban and rural development, including priority mega projects. Efficient and timely implementation of the planned projects and programmes is important.

At the macro level, containing inflation while ensuring adequate credit flow to support higher private investment and growth will help. Increase in electricity prices to partially adjust the LNG import costs could pose inflationary risks. Global oil prices rising above expectations could stoke inflationary pressure. Adverse weather is a perennial risk.

FE: Do you think that there is a lack of good governance in the country? Why or why not?

MP: Good governance is an important element of inclusive and stable economic development. It is critical to sustain and improve management and services of the state. In the last 10 years, Bangladesh has made significant progress in governance reforms and is working to create a climate of good governance.

Good progress has been made in reforming policy, legal and institutional frameworks regarding access to justice, anticorruption, public administration, revenue management, public financial management, e-governance, and capital markets, under the Good Governance Programme supported by ADB.

These reforms led to further reforms in the legal, judicial, and public administration sectors. For example, the government reconstituted the law commission, human rights commission, election commission, securities and exchange commission, energy regulatory commission, and telecommunication regulatory commission, and formed the competition commission. It also approved a public money and budget act, citizen charter and a financial reporting act, introduced an annual performance agreement system for the bureaucracy, and formed a financial reporting council, among other reforms. So, overall good progress has been made over the last 10 years.

Moving forward, further improvements in areas of corporate governance, banking sector, public debt management, revenue mobilisation, public procurement, reducing the cost of doing business, and attracting the best talents in government will help. Together with good policies, use of ICT and technologies can help unleash the full potential of good governance.

FE: How ADB is going to assist Bangladesh to smoothly graduate from LDC category by 2024?

MP: ADB values its strong and dependable partnership with Bangladesh. Over the last 46 years, ADB has assisted Bangladesh in achieving its development aspirations. Till 30 June 2019, ADB approved around $25 billion in loans, technical assistance and grants for Bangladesh. ADB will continue to support Bangladesh to unleash its huge potential and achieve prosperous, inclusive, resilient, and sustainable development as well as the Sustainable Development Goals (SDGs). Under our newly approved Strategy 2030, we will strengthen country-focused approach and promote innovative technologies to deliver integrated solutions, combine expertise across a range of sectors and themes through a mix of public and private sector operations, and innovative high impact projects. Gender equality, good governance, institutional strengthening, and climate change mitigation and adaptation will be major pillars for ADB operations in Bangladesh.

FE: What will be the major challenges for the country in immediate post-graduation era?

MP: The major challenge will be mobilizing adequate development financing. Promoting private sector; developing strong financial market including capital and bond markets; boosting public-private partnership; and pursuing competitive trade agreements with partners will help attract more investments.

Fully exploiting the demographic dividend through skills development; diversifying exports by exploiting the potentials of economic zones; capturing high value markets by using technologies; financial inclusion; improving business climate; attracting higher private investment in trade, infrastructure and services; developing agriculture; managing urban and rural development; fully exploiting the advantage of regional cooperation and connectivity; and boosting power trade, tourism and public goods are areas of priority.

Though Bangladesh economy has grown by an average of 7.0 per cent annually over the past five years, the country still faces infrastructure deficit. Improving project implementation capacity, reengineering internal business processes, export diversification, increased revenue mobilization, improving human capital, and reducing the cost of doing business are challenges requiring further attention.