Home ›› 27 Feb 2022 ›› Editorial
The Washington-based think tank, Heritage Foundation has recently revealed its findings related to economic freedom in the world. The prestigious organization states in its yearly economic freedom index report 2022 that the global average economic freedom score stood at 60– a drop of 1.6 points from 2021. Actually, the fast spreading and deadly coronavirus had been one of key causes behind the decrease in the score. In view of the scores achieved by the economies, one can easily make assessments on the socio-economic conditions of the economies concerned. For the past 28 years since 1995, Heritage Foundation has been putting on display the socio economic pictures of economies through its index of economic freedom. The index of economic freedom is a composite measure of the quality of political-economic institutions across different jurisdictions. Scores and ranks in an index are based on criteria that the creators of the index judge as being relevant, which vary from one index to another.
Economic freedom means the fundamental right of every human to control his or her own labour and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please. In economically free societies, governments allow labour, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself. The ideals of economic freedom are strongly associated with healthier societies, cleaner environments, greater per capita wealth, human development, democracy, and poverty elimination.
It is important to mention here that index of economic freedom is measured based on twelve quantitative and qualitative factors, grouped into four broad categories. The categories are
1. Rule of Law (property rights, government integrity, and judicial effectiveness)
2. Government Size (government spending, tax burden, fiscal health)
3. Regulatory Efficiency (business freedom, labour freedom, monetary freedom)
4. Open Markets (trade freedom, investment freedom, and financial freedom)
Prepared by Heritage Foundation, the 2022 index of economic freedom shows that Bangladesh’s economic freedom score is 52.7, making its economy the 137th freest in 2022. It is mentionable that Bangladesh is ranked 29th among 39 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.
Under Rule of Law, property rights made a score of 36.3, government integrity 22.2, judicial effectiveness 28.1 out of total scores 100 and in government size the score was recorded for tax burden 82.6, government spending 93.2, fiscal health 54. The score came for business freedom 55.6, labour freedom 36.6 and monetary freedom 70 under Regulatory Efficiency. Trade freedom scored 63.8, investment freedom 50 and financial freedom 40 under Open Markets category. The scores reveal that Bangladesh lags behind Bhutan, India and Sri Lanka and is marching ahead of Nepal, Pakistan and the Maldives.
Bangladesh is situated in the Asia-Pacific region, the largest geographic area in the globe with a population of 4.63 billion. The region has, in the meantime, gained positive reputation in terms of economic growth and socio economic conditions. Economic expansion of Asia-Pacific region is in an impressive state at about 4.1 per cent annually over the past five years, driven largely by China, India, Bangladesh, Vietnam, and other trade-oriented economies. According to the Heritage Foundation, the region also has the world’s lowest average rate of unemployment (5.3 per cent) and second-lowest average rate of inflation (3.8 per cent). Among the five global regions in the Index, however, the Asia–Pacific region also has the second lowest population-weighted GDP per capita $16,807 at purchasing power parity. Public debt of the region is 72.0 per cent of GDP. Among a total of 40 countries in Asia-Pacific region, three countries were categorized as ‘free’ with score ( 80-100), two were ‘mostly free’ ( 70-79.9) , 13 are ‘moderately free’ ( 60-69.9), 11 are ‘mostly unfree’ ( 50-59.9), 10 are repressed ( 0-49.9) and one is in the category of ‘not graded’. What is worrying that Bangladesh’s position is in the category of ‘mostly unfree’ with the score of 52.7.
There is positive relationship among good economic freedom index and GDP growth rate. The relationship between economic freedom and per capita gross domestic product (GDP) is highly significant, no doubt. According to statistics from the fiscal year 2020-2021, Bangladesh’s GDP growth rate was recorded at 6.94 per cent with a total GDP size of US $ 416 billion. It is important to note that per capita income was increased to USD 2591. But, even with the current impressive GDP growth rate, Bangladesh could not achieve expected level of scores in the index of economic freedom. Higher scores reflect more economic freedom. The pandemic might be the cause of achieving less than expected scores. Average GDP per capita by economic freedom category in Asia- Pacific is around $ 64,933 for ‘Free’ category, $ 48,151 for ‘Mostly Free’, $ 18,313 for ‘Moderately Free’, $ 7,582 for “Mostly Unfree’ ( Bangladesh lies in this category), $ 9,216 for the repressed category.
It is widely known that the World Bank has taken strong decision in respect of discontinuing its ‘Ease of Doing Business Index’ report. Following World Bank’s decision, the globally branded entrepreneurs and business people are currently sourcing alternative avenues in order to judge country’s position for doing business. As Bangladesh changes its status from a least developed country to a developing country in 2026, the foreign remittance and export-earnings dependent economy needs billions of dollars’ worth of Foreign Direct Investment. If Bangladesh is judged by the index of economic freedom, the foreign investors might have to think twice before doing business in Bangladesh.
According to Heritage Foundation, scores of investment freedom and business freedom were 50 and 55.6 respectively in Bangladesh. Besides, Bangladesh’s labour freedom score fell significantly from a record high of 68.8 in 2021 to a record low of 36.6 in 2022. Following LDC graduation, Bangladesh is set to lose Everything but Arms (EBA) facility under GSP in European markets. Despite its concerted efforts to enjoy GSP+ after 2026, the on-going hard work might be nipped in the bud in view of labour freedom score among other factors. There is no alternative to establishing labour rights in ensuring the GSP+ facility.
Though Bangladesh is in process of developing negotiation with many countries in respect of Free or Preferential trade Agreement (FTA/PTA), its results remain uncertain. Bangladesh is yet to show its credentials in advancing trade agreements. For this reason, the country is likely to face lots of economic hurdles in the days to come. The only ways to overcome the current problems are taking steps to improve index of economic freedom that helps the inflow of FDI to a great extent. Nevertheless, a speedy assessment needs to be done as soon as possible regarding the reasons why the current GDP growth rate is inconsistent with index of economic freedom.
The writer is an economic affairs analyst. He can be contacted at: mazadul1985@gmail.com
