It is heartening to know that South Asia has regained its status as the world's fastest growing region. The semi-annual South Asia Economic Focus Spring 2018 report published by the World Bank recently, covering the period July-December 2017, makes this claim. It however cautions that much of the progress has been driven by India's growth rebound and has not been consistent across the countries of the region. Titled 'Jobless Growth?', the report however warns that economic growth alone will not be sufficient to achieve higher employment rates enjoyed by other developing countries. In fact, declining employment rate is making the region forego some of its potential demographic dividends. The report recommends adoption of policies and actions that make growth more labour-intensive and generate jobs that encourage greater labour force participation by the women community.
Dwelling on the economic performance of Bangladesh during July-December 2017, the WB report notes that inflationary and budgetary pressures had been high and the trade deficit had widened in the first half of the fiscal year. On the other hand, the output growth driven by industrial and services sector had remained resilient, while the financial sector vulnerability had exacerbated. Although exports and remittances had recovered to some extent, there had been a swelling of the current account deficit due to a surge in imports. The report notes that inflation rate had increased to 5.8 per cent from the previous fiscal's 5.4 per cent, and the current cum capital accounts turned into a deficit of 422 million US dollar from a healthy surplus of 2.0 billion US dollar during the previous year. Besides, Bangladesh was confronted with the huge challenge of creating around 1.1 million jobs per year if it was to maintain and sustain its present employment rate.
The WB report also paints a challenging and risky scenario for the Bangladesh economy during 2018 in the run-up to a national election scheduled for December, which poses further instability and uncertainty. It casts doubt on the official GDP figures as they are almost exclusively based on production statistics, but forecasts a growth rate of around 6.5 per cent during the current fiscal, again driven by the manufacturing and services sectors. Mainly propelled by the garments sector, exports grew by 7.1 per cent during the first six months of the current fiscal year. Remittances also grew by 12.5 per cent, mainly due to contributions by expatriates from the GCC economies (in addition to US and UK) that benefit from higher oil prices. Investment is also expected to increase by 8.0 or 9.0 per cent. Inflation has however been projected to rise due to expected rise in global commodity prices. A large revenue shortfall, additional imports mainly for food items, widening of export subsidies, unforeseen bank capitalisation expenditures and expenses owing to the Rohingya crisis may, however, make the budget deficit cross the healthy threshold of 5.0 per cent of GDP.
The potential risks to the economy in the coming months include a return of political turmoil and instability, as the parliamentary elections approach, as well as the likely failure to improve corporate governance in the banking sector, leading to bank insolvencies. Accelerated growth of private sector credit may worsen the problem of non-performing loans and large losses by state-owned enterprises may exacerbate the budgetary imbalance. Besides, increasing job-oriented growth by boosting regulatory reforms is a key challenge facing the government. Better infrastructure management and skill development as well as superior matching of skills with jobs would be required to enhance the economy's jobs-oriented growth potential. Achievement of the ambitious revenue targets set by the NBR for the current fiscal year would require compliance improvements, streamlining of tobacco taxes and rationalisation of tax incentives.
As dwelt on by the WB report, accelerated growth of GDP also needs to ensure that it has a positive impact on income gains made by the poor and near-poor households. The question of regional disparities in the country with regard to poverty and employment needs to be addressed by the government in a targeted manner. The main driver of GDP growth has been found to be public sector spending in recent times, but stagnant private sector investments during the past few years had a worsening effect on the unemployment situation. The government's data gathering mechanism and the statistical methodology employed also needs improvement, as data inconsistencies have been repeatedly found with regard to growth rate, income-cum-employment generation as well as industrial output.
In addition to concerns expressed by the World Bank in the above-mentioned report, slackening of ethical standards in governance amid an all-pervasive corruption environment as well as aggravation of phenomenon like capital flight during the election year pose additional challenges to the government in the coming months. The government's spending by means of annual development programme (ADP) is also likely to be exorbitant during the election year, as additional demands by ministries are being accommodated even after the approval of revised ADP. Around 150 development projects were passed at the 18 meetings of the Executive Committee of National Economic Council (ECNEC) during the first seven and half months of the fiscal year up to February 2018. Of them, over 80 per cent were new projects, mostly related to construction of roads and communication infrastructure aimed at appeasing voters.
In fact, financial spending by the incumbent government in Bangladesh during the election year appears to be reaching an alarming level, as relevant indicators clearly demonstrate. Observers opine that this is being apparently done to indirectly influence the voters for the upcoming polls. But the slow rise in the government's revenue income has not been keeping pace with the rapid increase in revenue expenditure, and this is likely to put the economy under chronic stress in the coming months. Although Bangladesh can in no way officially graduate from the status of a least developed country before 2024, the recent lavish celebrations centring around this yet-to-be distant occurrence has been a pointer to this excessively liberal mindset of those in power with regard to public finance.
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