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The last few weeks have witnessed discussions, deliberations, praises and criticisms pertaining to developments taking place in Bangladesh's economic and financial sectors. Economists, sociologists, retired bankers and many from civil society groups have given their opinions-- some constructive-- with regard to the evolving circumstances. This assumed particular significance as the period coincided with the presentation of the national budget at the Jatiya Sangsad by the finance minister.
It has been eventful, particularly if one takes into consideration the spectacular and sustained economic growth achieved Bangladesh achieved despite many handicaps. This has also assumed particular interest as the country has gradually moved from the status of least developed country (LDC) towards a developing one.
In this context one needs to refer to a recent article - "Why is Bangladesh booming?" -by economist Kaushik Basu published on May 01, 2018. He has noted that "Bangladesh has become one of Asia's most remarkable and unexpected success stories in recent years. Once one of the poorest regions of Pakistan, Bangladesh remained an economic basket case-wrecked by poverty and famine-for many years after independence in 1971. In fact, by 2006, conditions seemed so hopeless that when Bangladesh registered faster growth than Pakistan, it was dismissed as a fluke. Yet that year would turn out to be an inflection point. Since then, Bangladesh's annual GDP (gross domestic product) growth has exceeded Pakistan's by roughly 2.5 percentage points per year. And this year, its growth rate is likely to surpass India's (though this primarily reflects India's economic slowdown, which should be reversed barring gross policy mismanagement)."
While carrying on with the comparison, the economist has also noted that at 1.1 per cent population growth per year, Bangladesh's population growth is well below Pakistan's 2.0 per cent rate, "which means that its per capita income is growing faster than Pakistan's by approximately 3.3 percentage points per year". Basu has then gone on to mention that "by extrapolation, Bangladesh will overtake Pakistan in terms of per capita GDP in 2020, even with a correction for purchasing power parity".
There is a general agreement that this steady socio-economic transformation in Bangladesh has been driven forward through social changes. Empowerment of women and reducing the gender gap has definitely helped women to take significant strides toward educating girls and giving women a greater voice - both in the household and the public sphere. These measures have translated into improvements in children's health and education. Consequently, the average life expectancy in Bangladesh is now 72 years, compared to 68 years in India and 66 years in Pakistan.
Another interesting aspect in Bangladesh's economic growth has recently been revealed in data released by the World Bank. These highlight the efforts undertaken by the Bangladesh government in supporting grassroots initiatives within the financial sector. Among Bangladeshi adults with bank accounts, 34.1 per cent made digital transactions in 2017, compared to an average rate of 27.8 per cent for South Asia. In addition, only 10.4 per cent of Bangladeshi bank accounts are "dormant" (meaning there were no deposits or withdrawals in the previous year), compared to 48 per cent for Indian bank accounts.
There is no doubt that Bangladesh is moving forward. However, it is at this point that the country faces several crunches. Unless it is careful, and overcomes them, it might end up regressing instead of moving forward. Some of these challenges have surfaced in the last few days during inter-active discussions.
BANKING SECTOR: The first relates to existing culpability within the banking sector. Eight state-run banks today account for more than half of the Tk 885.89-billion default loans in the banking sector at the end of March, 2018. Unbridled indiscipline, according to critics, continues to affect the entire industry. Statistics have revealed that the default loans of Agrani, Rupali, Sonali, Janata, BASIC, Bangladesh Krishi, Rajshahi Krishi Unnayan and Bangladesh Development Bank stood at Taka 491.12 billion- up 14.88 per cent from the previous quarter, according to Bangladesh Bank. Sonali had the highest amount of default loans at the end of March- Taka 143.05 billion. This is totally unacceptable.
Corruption and cronyism appear to have played their due roles. There have also been the bad effects arising from lack of regulatory accountability. Critics have pointed out that the ministry of finance's efforts to re-capitalise the state-owned banks have not assisted in improvement within the banking sector.
CURRENT ACCOUNT DEFICIT: Another development is becoming a source of serious anxiety. This is the steady rise in current account deficit, month after month. This is persuading many to question whether it was sensible on the part of the government to have presented such a big budget this year. Statistics released recently have pointed out that Bangladesh's current account deficit during financial year 2017-18 surpassed $8.51 billion for the first time in its history at the end of April. It may be noted that at this point during the last fiscal year, the deficit was $1.79 billion. Such a deficit has already weakened Taka against the US Dollar and is also depleting foreign exchange reserve.
The central Bank is trying to contain the situation. However, economists have opined that this rate of increase in current account deficit might end up in the figure crossing $10 billion by the end of June this year. It may be mentioned that the Bangladesh Bank has already injected more than $2.0 billion into the market and has been trying to also put a cap on the bills for collection selling rate to keep the exchange rate stable. Nevertheless, currently the inter-bank exchange rate has reached Tk 83.70 per US Dollar - up from Tk 80.60 from a year earlier. All these elements have led to trade deficit widening 87.53 per cent year-on-year to $15.33 billion in the first 10 months of the current fiscal year, according to the Bangladesh Bank.
These troubling figures have led Syed Mahbubur Rahman, Chairman of the Association of Bankers, Bangladesh, to underline his concern by pointing out that between July last year and April this year, imports surged by 25.18 per cent year-on-year whereas exports grew only 6.99 per cent. Foreign direct investment has also apparently declined recently by 7.35 per cent year-on-year (July, 2017 to April, 2018) to $ 2.37 billion.
STAGNANCY IN PRIVATE INVESTMENT: To the above has been added the factor of relative stagnancy in private investment which plays a vital role in job creation and narrowing economic inequality.
Private sector investment is crucial if any country is to continue with its sustainable economic growth and structural transformation. This is also related to political stability. This generates confidence and helps to resolve emerging challenges. In this regard, in one of the recent workshops it was underlined that to facilitate this process, the government should implement the mega projects within the stipulated time, within the approved allocated expenditure and also ensure quality Annual Development Programme implementation.
THE CHALLENGE OF RESOURCE MOBILISATION: While remarking on the need to create fiscal space to finance development, economist Sadiq Ahmed of the PRI has made an important observation. Referring to the decision to place a Tk 4.65 trillion budget for the FY 2018-19, he has suggested that "achieving the stated goals will require major improvements in policies, institutions and resources as the resource mobilisation will be a challenge in the public sector". He has also pointed out that "Tight fiscal space is a major development constraint. The tax to GDP ratio in Bangladesh is very low. It was 7.9 per cent in FY 2009 and has increased modestly to 9.1 per cent in FY 2017." This, according to him, needs attention.
It has also been noted by some bankers that the implementation record for the first three years of the Seventh Five Year Plan has indicated shortfall in terms of performance in the case of both tax and non-tax revenues. They noted that the tax-to-GDP ratio has increased by 0.5 per cent of the GDP while non-tax revenue has remained unchanged at 1.2 per cent of the GDP. This is worrying. One tends to agree with this concern.
While praising government efforts towards use of digital technology with regard to tax collection, analysts have remarked that the government should seriously consider expanding the tax base to the rural areas where digital accounting has made considerable progress. In this context, mention has been made about the steady and robust growth of digital transfer of funds by several institutions all over Bangladesh.
Another interesting and significant proposal has been the need to overhaul the audit system and transform it into a digitalised format based on a scoring method. This will stop auditing being used to unnecessarily harass political opponents or for corrupt practices. This will facilitate the creation of a meaningful tax rate.
Bangladesh is moving forward. The pace will gather momentum if there is greater transparency and accountability in tackling the multifarious problems the country faces.