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Decline in policy innovation hampering growth

Staff Correspondent
04 Oct 2023 23:19:36 | Update: 04 Oct 2023 23:20:23
Decline in policy innovation hampering growth
International Business Forum of Bangladesh (IBFB) holds its annual conference in the city’s Gulshan Club on Wednesday – Courtesy Photo

Growth volatility, inflation, a shortage of USD, and growing non-performing loans (NPLs) are key cracks in Bangladesh’s macro financial stability, which in turn is causing a rise in living condition inequality, a narrower export base, and informal sector expansion.

Moreover, these factors are triggering a sharp decline in trade intensity, accumulation, labour productivity in agriculture, as well as employment reduction in every industry.

Former lead economist of the World Bank's Dhaka office Zahid Hussain made the remarks in a presentation titled “State of the Bangladesh Economy,” at the International Business Forum of Bangladesh (IBFB) annual conference held in the city’s Gulshan Club on Wednesday.

He pointed out, “During 1990 to 2004, policy innovation was the key model component behind growth in Bangladesh, which resulted in infrastructure development, financial depth, trade intensity, and macroeconomic stability

“This also helped Bangladesh grow during the 2000 to 2019 period. However, this key component for growth was unknown in the country during the 2015-2019.”

Zahid added, “As a result, Bangladesh witnessed a declining trade intensity and accumulation (investment) inertia, symptoms of resource misallocation and low economic diversification, causing a narrower export base and larger informal sector.”

The eminent economist said the country’s reserves would be less than $18 billion if the central bank's liabilities are considered without royalties and interests owned by others.

He then said, “The reserves situation has not reached an alarming level as yet. But it is now a matter of concern because over $1 billion official reserve loss per month has been witnessed for the last 24 months.

“We are also witnessing a declining trend in remittances from $2 billion per month in 2022, to $1.5-1.6 billion in the three quarters of 2023. If the Bangladesh Bank continues to sell off USD, the reserves will eventually be depleted.”

Zahid said, “Inequalities in income and in living conditions have sharply risen in the country. Even though the productivity of labour in every sector grew more, their real wages did not grow significantly.

“Addressing better urbanisation and connectivity for faster productivity growth, more diversified and competitive exports, as well as human capital development is necessary for a higher labour income.”

He added, “A stronger financial sector and securing more foreign direct investments (FDIs) are a challenge for Bangladesh. Climate and geopolitical heating and cooling, and disruptive technological change are fueling macroeconomic instability.”

Attending the event as chief guest, Indian High Commissioner Pranay K Verma emphasised the need for strengthening trade ties between the two nations for economic progression, adding that Bangladesh and India have made headway on many fronts for over the last decade.

Mutual cooperation is the only way to enhance trade and business, Verma said.

Underscoring the need for signing a Comprehensive Economic Partnership Agreement (CEPA), he said, “A CEPA definitely helps to explore business opportunities to a greater extent. We are committed to expanding economic engagement more than before.

“In a bid to enhance trade relations, there needs to be improved multimodal connectivity.”

Verma added, “The private sectors of both nations have options to play a constructive role in taking businesses to a new height.  As Bangladesh is one of largest business partners of India, we are ready to serve the business community in Bangladesh on any affairs, including VISA.

“Bangladesh is set to become a developing country in 2026, and the country has to work bilaterally in addressing LDC graduation related challenges. There must be mutual cooperation in seeing a balanced trade volume between India and Bangladesh.”

IBFB Founding President Mahmudul Islam Chowdhury said, “There are many ways to explore mutual business. India has given a lot of support to Bangladesh over decades in terms of trade and commerce.”

IBFB President Humayun Rashid chaired the programme. Among many others, IBFB members, economists, and researchers attended the event.