Post Breakfast
Anxiety about the economy
It is quite normal to see reports and analytical assessments about our national economic performance during June and July of every year. It coincides with our financial year that begins in July and ends in June. This year has been no exception. Most analysts, as expected, have given their overview and been moderate in their criticism. Some others however, probably more than usual, have referred to emerging negative trends and been harsh.
I shall refer first to the ongoing disagreement between the Bangladesh Bank, certain economists and the IMF over our future monetary policy. The IMF, consistent with their true conservative nature had suggested a tight monetary policy for Bangladesh and had claimed that the existing policy was 'too expansionary' to combat the surging inflation. This came one day before the Bangladesh Bank Governor outlined the official position.
The Bangladesh Bank, for a change, was pragmatic and realistic. The Governor announced that the Bangladesh Bank would continue to follow an expansionary monetary policy because if the policy was tightened at this moment, the pace of economic activity might be hampered. It was also underlined that monetary tightening can bring down inflation, but it has unacceptably high costs in terms of output and employment which Bangladesh can ill afford at present 'in view of its growth and poverty reduction imperatives'. By taking such an approach, the Bank was demonstrating its consciousness about not hampering private sector credit needs. As expected, this approach has been welcomed by economists, businessmen and bankers who have pointed out that this step will encourage private sector investments, that will spur economic growth. I agree with Bangladesh Bank's initiative but at the same time need to put on record that they should pursue their policy with caution and also exercise a degree of indirect control to ensure that we do not lose the plot totally.
The last few days have seen a plethora of reports about various dimensions of our economy. One has outlined how the growth of the country's industrial, agriculture and service sectors has declined significantly in the last financial year. Referring to provisional figures released by the Bangladesh Bureau of Statistics (BBS), it said the country's growth of overall industrial sector fell significantly to 6.87 per cent from the previous year's growth of 9.74 per cent. It also pointed out that the growth in Bangladesh's agriculture sector came down to 3.61 per cent in the last fiscal from 4.94 per cent in FY 2006-07. The growth in the service sector also declined to 6.69 per cent from 6.92 per cent. These factors, quite justifiably, are expected to affect growth of the country's GDP for FY 2007-08.
There has also been another significant report. The Japan External Trade Organization (JETRO) has just indicated that the cost of investment in Bangladesh is not getting cheaper as all the cost components have marginally increased to 2.45 per cent in 2008 from 2.44 per cent in 2007. This 18th survey of JETRO also found that the maximum corporate tax for non-listed companies in Bangladesh was 40 per cent, the highest among all the 30 countries that the survey covered. Since then, our government has decided to reduce corporate tax to 37.5 per cent. This will probably regain for us a slight competitive edge.
However, to regain a more meaningful advantage, the government will also need to focus on other factors like -- inadequate infrastructure facilities, container transportation, land price of industrial estate, initial internet connection fee, monthly basic internet connection fee, telephone installation fee, mobile phone subscription fee, corporate income tax etc. The government should also be seen as being consistent in terms of policies and facilities that are made available for foreign investors. In this regard they must understand that sudden changes may sometimes be seen as a breach of faith and this, in the long run, affects relationships with investors.
Bangladesh Bank's latest policy will help regeneration within our economy. This government, in its own way, has been trying to restore business confidence among the entrepreneurs -- both big as well as the SMEs. This is required given the 27.5 per cent reduction in the import of capital machinery during the last fiscal year. The drive against corruption has probably played a significant part in this. This also implies that there is a chance that the country's industrialization might not improve, as expected in the current fiscal year.
It may be noted in this context that this is the first time since 1998-99 fiscal that the country witnessed such a negative growth in import of capital machinery after a steady growth over the last decade. This reduction in capital machinery import is that much more worrying because it is not consistent with the overall pattern of the country's import figures for 2007-08 fiscal, where the value of imported goods rose by 26.4 per cent to a record USD 20.21 billion from USD 15.9 billion of the previous fiscal year. This overall increase in import value might have been due to the price hike of almost all the imported commodities in the international markets and the higher import price of rice but reduction in import of capital machinery despite increase in total imports is not a good sign.
Another anxiety facing the entrepreneurs, particularly in the private investment sector, is the critical question of gas supply to new industrial units. It is silly to say that Bangladesh is ready for foreign investors and then to tell them that they have to wait for gas connections and sufficient energy/power required for the running of their proposed industrial unit. A classic case in point is the newly licensed Korean EPZ area near Chittagong and also other EPZ institutions elsewhere in the country. Many foreign entrepreneurs have shown their willingness to invest or to transfer their manufacturing capacity to these zones but are now hesitating to do so because of uncertainties related to gas and energy supply. Lack of assured power is also affecting many private sector investors outside the EPZs, particularly in the Chittagong area. Some of them have tried to ease infrastructural bottlenecks by purchasing their own generators, but have been unable to put them to proper use in the absence of steady gas supply.
The government has to deal with this expeditiously. We have heard several statements in this regard by the responsible authorities but the result till now has been a big zero -- all because of poor planning and lack of perspective foresight. Eighteen months later, we are still at square one.
We have problems, but I also strongly believe in Bangladesh's economic future and the prospect of Bangladesh becoming a middle-income country in 15 years -- two years ahead of what has been predicted by the United Nations Conference on Trade and Development (UNCTAD). The prospect of such a transition and this assumption is based on several economic indicators. These include export growth of manufactured products, the steady increase in remittance being sent home by our expatriate community and reasonable success in implementing various MDGs.
Despite resource constraints and being an LDC, Bangladesh, according to UNCTAD, has accounted for 34 per cent of the LDC group's total manufactured exports and 7.4 per cent of their merchandise exports.
Various factors are working silently to improve the situation. This has been translated into interesting findings in recent surveys. Apparently, a larger proportion of the population, especially in the rural areas is gradually moving upwards the income ladder. The number earning between US dollar 1 and 2 has grown and that earning less than US dollar I has fallen.
Our economy has been growing despite our acrimonious politicians. For that we need to thank the private sector. The large and medium level entrepreneurs (belonging to the Metropolitan Chamber of Commerce and Industry) feel that the overall business climate and the present government's commitment to be business friendly are proving to be helpful. The Bangladesh Bank has also taken certain positive steps. One can only hope that the necessary elements will now fall into place to create greater growth momentum and we will grow at a faster rate than the 5.7 per cent predicted by Citi Bank for the next fiscal year.
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