October 2022 Full PDF final

ECONOMI
ECONOMI
REFORMING BANGLADESH’S
GDP GROWTH MODEL
Bangladesh is now considered as one of
the world’s fastest growing countries in
terms of economic growth. For the last few
decades, the country has been successfully
able to maintain its growth that prompted
rave reviews. But how long will Bangladesh
sustain this growth? Addressing the
challenges lie in the economic sector of
the country, experts and international
financial organisations have suggested
several reforms targeting the next phase
of economic growth. MOHAMMAD RAFIUL
HASSAN dissects the idea as to whether
the government should take these into
consideration
Of late, Bangladesh has secured 95th position out of 184
countries in terms of financial development, which is
slightly above lower-middle-income economies, but below
upper-middle-income economies. It is one of the top 10
fastest growing countries in the world for several decades
now. But there is no reason to be complacent as economic
boom is never a permanent trend. The World Bank (WB)
in its “Bangladesh- Country Economic Memorandum:
Change of Fabric” report said Bangladesh’s current growth
structure is not sustainable and its GDP (Gross Domestic
Product) may fall below 4 percent between 2035 and
2039 without further reform. The WB report depicts that
growth in fast-developing countries is always at high risk.
Few countries have sustained high growth for long periods.
Only one-third of the countries in the top 10 continued to
experience high growth over the next decade or so.
An aspiration to reach upper-middle-income status by
2031, as World Bank stressed, cannot be achieved
through financing sourced from the public sector alone.
To reach the next stage of development, Bangladesh
will require $608 billion investment in infrastructure by
2040. As it will not be possible for the government to
provide the entire investment, large investments by the
private sector will be needed, the WB said. The Asian
Development Bank (ADB) also recommended ensuring
investment for infrastructure from the Public Private
Partnership (PPP) modality of at least 1.8% of GDP, or
around $5 billion each year.
The Washington-based lender, however, notes that it
will be difficult to meet the investment demand by the
private sector, owing to severe financial sector mismanagement,
liquidity crisis in the banking sector and the
government's excessive dependence on domestic debt.
The report also points the finger at an inconsistent ratio
of GDP and banking sector credit flow. In the latest WB
report, Bangladesh’s performance in the financial development
index points to a disappointing situation in
the financial institutions. Bangladesh scored only 0.24
points out of a total score of 1 in the financial development
index of WB and the International Monetary Fund
(IMF) in 2020. In a worrying development, the share of
exports in GDP has been declining since 2011 – thereby
raising doubts on Bangladesh’s growth model sustainability.
Asked what growth rate was needed for Bangladesh to
become an upper middle-income country (MIC) by 2031
and a higher-income country (HIC) by 2041, WB Bangladesh
lead economist Zahid Hussain said the arithmetic
inferred that the baseline growth is 6.5% but Bangladesh’s
GDP needs to grow at 7.8% per year to make it
to the upper middle-income country by 2031. However,
the current global economic condition may not allow
Bangladesh to grow at that rate in the coming days.
The International Monetary Fund (IMF) has lowered its
projection of GDP growth for Bangladesh to 6% in the
current fiscal 2022-23 from 6.7% as projected in April.
The global lender has forewarned that the worse is yet
to come and the next year will feel like a recession with
shrinking incomes and rising prices which may result in
even lower GDP growth rate.
Talking about the need of reform, Nora Dihel, the senior
economist at WB in her presentation warned about the
LDC graduation challenges and expained why reform
is necessary for Bangladesh’s uninterrupted economic
growth. "Comprehensive reforms are required to enhance
financial sector intermediation capacity to support
economic growth while preserving financial sector
stability," notes the WB report. Three obstacles to the
country’s growth are identified in the report titled “Bangladesh
Country Economic Memorandum – Change of
Fabrics” which are as follows:
THE WORLD BANK (WB) HAS IDENTIFIED THREE OBSTACLES TO THE COUNTRY’S GROWTH:
1. Declining trade
competitiveness
DURING THE LAUNCHING OF THE REPORT TITLED “BANGLADESH COUNTRY ECONOMIC MEMORANDUM –
CHANGE OF FABRICS.” THE WB RECOMMENDED SOME ACTIONS TO SUSTAIN THE GROWTH:
1. Export products should be diversified
2. Bangladesh Tariff rate should be lowered
3. Financial sector must be reformed
4. Attention should be paid to balanced urbanization
TRADE COMPETITIVENESS
2. A weak and
vulnerable financial
sector
3. Unbalanced and
inadequate
urbanization
To maintain growth in exports, products should be
diversified. The country’s growth model now based
on trade competitiveness based on low wages where
trade preferences are eroding, overreliance on readymade
garments exports and a protective tariff regime
challenge the sustainability of Bangladesh’s
growth. Bangladesh’s exports are extremely concentrated.
Actually, the export basket is four times more
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