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Macro-economic improvements not enough for sustained growth
5/5/2004
THE 'feel-good' factor is missing in Bangladesh, notwithstanding the fact that its overall economic performance in terms of growth of the gross domestic product (GDP), has improved. The latest assessment by the Asian Development Bank (ADB) through its Quarterly Economic Update (QEU) released last Sunday indicated that the growth rate of Bangladesh's GDP, representing the aggregate value of goods and services produced in its economy, in real terms, would, in all likelihood, achieve or even exceed, the projected level for fiscal 2003-04. This assessment does largely conform to what the Bangladesh Bank and also the World Bank (WB) and the International Monetary Fund (IMF) have, of late, indicated in their latest reviews of the state of the Bangladesh economy. This is quite a positive performance. But unfortunately the 'feel-good' factor - an important one for the investment climate in order to generate and sustain a momentum of dynamism - is not there among the people at large. Rather, the country's fractious polity, deteriorating law and order situation, inflationary pressures, governance problems etc., remain matters of concern for all sections of people. That will clearly support the contention that growth alone does not suffice for the kind of optimism that is of consequence for the economy to move ahead steadily forward.
In its latest QEU, the ADB has pointed out that the growth performance of the Bangladesh economy in fiscal '04 will be underpinned by expansion in both domestic and external demand. According to its assessment, there is also a turnaround in investment, particularly in the private sector. To this effect, the ADB has cited the signs of an upturn in private sector credit including agricultural credit and industrial term loan disbursement and the flow of foreign direct investment. But the visible impact of such positive developments is still not there. The lagged factor between investments being made and production units thereof going on stream is partly responsible for that. However, the improvement in the growth scenario as well as macroeconomic management which all the recent reviews of the state of the Bangladesh economy have indicated, are overshadowed by many other negative economic and non-economic factors. Such factors are putting a brake on the acceleration of the process for further expansion of output of goods and services. Had there been proactive measures to address effectively such factors - and problems associated with the same - the economy would have witnessed faster progress with its shared and equitable benefits enjoyed by all segments of the country's population.
For the latter to become a reality, it is imperative for the government to translate its own promises and pledges about carrying forward the reform agenda in many areas of economy, governance and human resources development into hard actions. Mere improvement in macroeconomic management will not make much of a difference to the overall business environment at the micro-level unless such actions come sooner than later. There is no denying that private involvement in Bangladesh is hampered by several structural rigidities of the national economy, weak and shallow financial systems and capital market, operational limitations on activating properly the foreign exchange market, shortage of skilled labour, a host of governance issues ranging from an ineffectual policy and regulatory environment and poor public service delivery to bureaucratic inefficiency and endemic corruption. All these factors, coupled with the confrontational politics and law and order problems, raise the cost of doing business in Bangladesh. The competitiveness of the national economy is hurt in the process. Now that economic activities have otherwise started picking up as is indicated by the latest reviews of the state of the situation, the most important thing for the government to do is taking of actions for lowering the cost of doing business. If this need is not addressed, encouraging and promoting new investments on a sustained basis for having a well-diversified economy to generate adequate employment-creating and income-generating activities will remain a far cry.
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