Stimulating private sector investment key to triggering recovery: Mustafiz

Bangladesh should not be too concerned about GDP growth figures, in view of the emergent situation, rather issues of health risk mitigation, addressing the challenges of existing and new poverty, job creation, and inclusiveness of the growth process should get the highest priority, Professor Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue, tells The Business Post’s Ibrahim Hossain Ovi in an interview.

Exports show recovery from Covid fallout to some extent. How can Bangladesh ensure that exports recover fully?

Bangladesh witnessed an upturn in exports performance in the fiscal year 2020-21, with a 15.1 per cent growth in export earnings compared to previous year, when export took a dip of 16.9 per cent.

However, the export earnings of $38.76 billion is still 4.6 per cent lower than the $40.54 billion exported in the pre-Covid year of FY19.

On the other hand, overall exports performance was mostly driven by the growth of RMG, which posted 12.5 per cent rise.

Both demand and supply-side factors contributed to the export recovery as North America and the EU started to come out of the initial Covid-induced shocks in 2020.

Economic activities in Bangladesh gradually acquired momentum following the initial shutdown and slowdown, particularly in the second half of FY2021.

Retaining and sustaining the export recovery will hinge on a number of factors, concerning both the domestic economy and the overseas market.

Everything will depend on Bangladesh’s ability to contain and reduce the health risk, which needs the highest priority.

Keeping supply-side working and production going will largely depend on this.

On the other hand, attention must be given to stimulate private sector investment the stagnation of which predates the pandemic, while have to encourage flow of export-oriented FDI, at least a number of special economic zones must be put into operation at the earliest.

Bangladesh’s sustainable export performance will also critically hinge on the pace of recovery of the economies of export destination countries.

How government can generate new employment opportunities for people who lost jobs?

The ongoing pandemic has a significant adverse impact on the labour market of Bangladesh. Studies showed about 60 per cent people in the country’s labour market lost their jobs.

Many were compelled to switch to agriculture from the servicessector where they suffered income erosion and joined the group of the hidden unemployed.

So, government’s highest priority should be addressing the problems of income erosion, poverty and new-poverty by rejuvenating the employment and reducing health risk in FY22.

Stimulation of employment in FY 2022 will, to a large extent, depend on energising the private sector investment, raising aggregate demand in the economy and by providing necessary fiscal-monetary support to incentivise the private sector.

There should be a second round of stimulus package particularly for the CSMEswith measures to improve implementation by drawing on the lessons of the first round of support.

Direct cash support to stimulate aggregate demand, which could induce supply-side response and consequently trigger job creation, has proved to be effective in many countries as a means of revitalising the job market.

Government can also create employment opportunities through labour-intensive small-scale public investment that takes into cognisance demand-driven spatial dimensions of development.

However, stimulating private sector investment and by extension, creating employment opportunities, will also hinge on the government’s ability to provide effective institutional-regulatory and facilitatory support to the private sector.

At the same time, Bangladesh should continue exploring job opportunities for migrant workers in the overseas job marketswhich will reduce the pressure on the domestic labour market.

Do you think Bangladesh should use its forex reservesfor investment right now?

It is true that Bangladesh’s forex resources have exceeded $46 billion which provides an important cushion for underwriting import demand, maintaining exchange rate stability and underwriting debt servicing and other forms of liabilities.

Imports are picking up at present, the growth being 17.3 per cent in the first 11 months of FY2021 compared to corresponding period of FY2020.

If this pace sustains in future, the reserves may come down. High flow of remittances has also contributed to the rising reserves, maintaining the current robust pace of remittance flows, at about 38 per cent in FY2021 compared to the preceding year, is highly unlikely in future.

Bangladesh’s debt servicing record and debt services as a share of forex earnings are quite good; however, the liabilities are likely to rise in future. So, forex management demands caution.

In view of the robust and rising reserves and the likely demands on the reserves in foreseeable future, the proposition to invest a part of it is something that merits consideration.

Bangladesh is currently borrowing heavily for implementing its development plan including themega-infrastructure projects. A part of the reserves may go towards financing of this expenditure.

But it will need to be kept in mind that it is not the government’s money and due diligence will have to be exercised and financial returns will have to be ensured.

What do you think about the GDP growth target in FY22?

I feel that we should not be too concerned about GDP growth figures, in view of the emergent situation. Rather, mitigation of health risk, addressing the challenges of poverty and new poverty, job creation and inclusiveness of the growth process should now be given the highest priority.

If we can set the economy on the path of recovery, by containing the health emergencies, stimulating aggregate demand and bycreating supply-side response in view of domestic and overseas markets, growth will follow. Bangladesh economy will soon reach historical growth trends, which, inspite of the debate as regards the exact growth rates, have been by any measurequite impressive.

The pandemic should be seen as an opportunity to ensure distributive justice, enforce good governance, and build institutional capacities.

Going forward, if we fail to address these emergent challenges, we are unlikely to sustain the growth momentum of the recent past years. ‘Build back better’ should imply that we think more about quality of growth and its distributive aspects rather than only about quantitative measures of growth.

Do you think government should offer fresh package for business to revamp economic activities?

Yes, as the first stimulus packages was not adequate enough to cater to the formidable and increasing demands of the economy, the government should come up with a second round of stimulus package to support the economy.

There are many reasons to follow up on the first set of stimulus packages which was promptly set in motion by the government immediately after the first wave of the pandemic. The ongoing second wave reinforces the justification of a second round.

For example, the support of Tk 20,000 crore for the CSMEs was insufficient given the demand and the significant adverse impacts suffered particularly by small entrepreneurs, traders and the self-employed.

Collateral-free modalities that are being explored now may be deployed in this regard. Also, avenues other than subsidised credit need to be put in place.

Stimulus support should also embrace start-ups and digital platform based economic activities which have demonstrated their potentials during the Covid times.

Regrettably, the allocations for safety net programmes in the FY2022 budget are not adequate, particularly in view of the ongoing second wave of the pandemic.