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How not to fall into 'middle-income trap'

| Updated: January 27, 2023 21:53:51


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Bangladesh's transition from a lower middle-income economy to a developing country is yet to be complete. The target set for achieving that status is by 2026. There was no doubt the country was well on course of that target. Only the combined ill impacts of Covid-19 and Russo-Ukraine war have cast some doubt about a smooth sailing to the shore on schedule. But to go by the observation of World Bank's managing director of operations, Axel van Trotsenburg, there are reasons to be optimistic. According to him, achieving the middle-income status is not the issue, the objective for Bangladesh ought to be to attain the higher-income status. He categorically sounds a note of caution for the country about falling into the 'middle-income trap'. True, transition from a lower-income economy to a middle-income one is quite a struggle but the next move up the ladder to the higher-income status is a gargantuan task.

The WB managing director who has just concluded his three-day visit to Bangladesh on Tuesday made it explicit that the multilateral lender will support the country to navigate through the 'challenging and uncertain economic times brought on' by the pandemic, Ukraine war and a climate change of unprecedented order. Acclaiming Bangladesh's growth and its target of doubling the per capita income by 2031, the high official of the WB has prescribed some measures for its sustainable growth. Failing to do so, the country, he warns, will finds its graduation from the middle-income to a higher-income status wavering in the vortex of the middle-income trap. In this context, he has cited the example of Argentina and Greece which could not come out of this trap. Then, there is the danger of an about-turn on the reverse course as a few Latin American countries have had the bitter taste of experiencing.

It is exactly at this point that Bangladesh has to make its option clear. All multilateral agencies including the WB have time and again suggested institutional reform. Indeed, strengthening of institutions is at the heart of streamlining transparent financial management, stemming corruption such as bribery and money laundering and revenue generation in real terms. So far as wealth creation is concerned, it could be at a higher rate by at least 2.0 percentage point if only financial corruption could be tackled effectively, if not stopped totally. This has to be complemented by rational distribution of wealth so that people at the lower level of society can earn enough to improve their living conditions.

Well, the WB's MD has then mentioned a list of must-do's which have been reiterated by both local and international experts. From macro-fiscal management to export diversification to investment in infrastructure to development of human capital ---all major issues he brings under the ambit of strategic planning and action. The recipe is not quite unknown. But knowing what to do is one thing and doing it in practical terms is a completely different matter. However, given the political will, the priority areas can be identified for immediate action. Developing human capital is one such issue that calls for far larger investment than what is allocated now in education which has, according to the authorities, been radically changed to undergo a paradigm shift. In the same way, corruption, export diversification etcetera can be taken care of gradually in the interest of catapulting the country on the trajectory of higher-income status.

 

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