Professor Abu Ahmed of the department of Economics, University of Dhaka, Director of CSE, Advisor of SEC and Director of BAPEX talks to ET. |
The economy is going down the downhill. Macro economic stability is being threatened by at least one aspect: inflation. Macro economic stability is dependent on the price stability. In economics, there was a theory once that if there is high growth it is likely there will be high inflation-this is not true any more. An increased aggregate supply can absorb the inflationary pressure. Emerging economies are having low level of inflation, which is around 3% to 5% in the present context. Examples of such economies are India and China. India is having less than 5%. We are facing inflationary pressure because the growth of our Gross Domestic Product is less than 7%. But to cope with the inflation 7% GDP growth rate is essential. As we are now achieving 6% of GDP it means we have 1% less growth in GDP, which is quite big enough for aggregate inflationary pressure. This is one of the main reasons why Bangladesh is unable to contain inflationary pressure. Another reason why Bangladesh could not achieve higher growth is investment. Investment has slowed down, especially for the last one year. The reason is the fear factor (due to the ant-corruption drive by the government). Moreover, the monetary policy was not conducive to higher level of demand for long-term credit. 16% to 18% interest is huge, so the investment scenario was not rosy. That was also reflected in import components; import of capital machineries declined. That means the economy is producing slower growth than we expected. I think the GDP growth of this Fiscal Year (FY) will be around 6%. We are achieving lower growth not for the political factor but for the economic mismanagement.
Bangladesh had been showing strong export growth for many years but recently it fell significantly. I don't think the export will pick up in 2008. However, export sector will perform well if there is more investment. Our potential sectors are RMG, Pharmaceuticals, and Food items. To make this prospect materialize we need more domestic investment, which is not coming forth.
Even though restrictions on exporting Chinese Garments to European market are going to be withdrawn in 2008, China in not a threat to us. China is going for high value-added products, which Bangladesh is not doing, and moreover wage rates are going up in China while Bangladesh is always in a strong position to compete in labour-intensive products and services.
However, Bangladesh needs to start production of high value added products and increase its profit creating capacity. The RMG sector should go for backward linkage such as production of fabrics and other accessories to be competent enough in the international market.
The exchange rate remains stable but we need to see at what costs. The dollar declined against major currencies but Taka did not appreciate against Dollar. If we consider the depreciation of the dollar, then taka has depreciated. Indian Rupee has been appreciated. In the normal economic sense, taka should have been appreciated.
In the near future, food prices might not go down in the international market so Bangladesh has to spend extra money for importing such items as edible oil, sugar, rice and wheat. Funding will not be a bigger problem because we have surplus foreign exchange reserve. However, foreign exchange reserve should be 10 billion dollars at least if we consider the size of the economy & it should have gone up at a quicker pace.
Talks are going on about creating Special Economic Zones in the country. This is a good idea because this will create a level playing field for everyone here. But EPZ is no more a good idea because although there is foreign investment in EPZs products are exported by using our subsidized inputs like gas, electricity and also at the cost of tax exemption. What are we getting from these EPZs then? Just some employment, which is also at the low level! Surprisingly nobody is challenging it but this is the fact. EPZ is the concept of the late 60s when there was no concept of globalization and there was high tariff barrier. At present the tariff barrier is almost at the level of zero. So, why some entrepreneurs mostly foreigners will get some extra favour! I don't find any logic. We have been exploited through EPZs. There are no unions, no work standard and no labour rights in EPZs.
I do not see any significant investment is going to be made apart from some in the power sector. Government itself can invest, but we should realize that public sector investment can't be a substitute for the private sector investment. Also, I don't support 100% government ownership by borrowing. Rather, it should be partly financed by the capital market. That will increase independency, efficiency and quality of the organization. In the past such idea was not there and our bureaucrats are told to run government enterprises and we find many of them are not efficient enough to handle them and this is why government enterprises can not compete with the private companies.
I don't support subsidy except in the agricultural sector. Subsidies will not solve economic problems. As 70% economic activities are done by the private sector, investment in this sector is vital for economic growth.
