Bangladesh is a free economy in the sense that its citizens have been allowed to exercise their freedom to choose vocations they can earn their income from, where they can spend it and what they can to do with their savings. That is, a kind of freedom exists in income-earning, consumption and savings. With freedom for individuals in economic decision-making, most of the areas of the economy have also been opened up for private investment including that from foreign sources. The government controls a small part of the economy -- less than 25 per cent of it --- while the rest is under the private sector. A thriving private sector and appropriate policy support have helped Bangladesh attain more than 6.0 per cent GDP (gross domestic product) growth on an average annually over a decade. Markets, as needed by the private sector, have been made open where demand and supply determine prices of goods and services.
The Bangladesh economy is increasingly being linked up with the global market. Bangladesh ranks among the top few countries in terms of manpower export and also readymade garments. The country has become known to the world for two export items - manpower and readymade garments.
There was a time when Bangladesh had to look up to the multilateral lending agencies like the World Bank, the Asian Development Bank (ADB) and the International Monetary Fund (IMF) for support to its development needs, but not anymore. The support these organisations now gives to Bangladesh is a very small part of what the country spends annually for its development projects.
Concessionary loans from the multinational lending agencies, including the World Bank, the ADB, the IMF and the Asian Infrastructure Bank (AIIB), will not be needed in the coming days. With a foreign exchange reserve of more than $ 27 billion, Bangladesh is in a position of paying for what it buys from abroad. The symptoms all around tell us that the country does not have any shortage of money, but what it now lacks is the knowledge of how to use it.
Though the Bangladesh economy seems to be shining, it is performing at less than its potential. Nobody has calculated its level of potentiality, but circumstantial evidence suggests that had there been an appropriate policy support in place and with less corruption and good governance, the Bangladesh economy would have been one of the few top performing economies in the world in terms of achieving annual growth rate. It is said, the Bangladesh economy is having between 26-28 per cent of GDP as investment, but this investment can easily be raised to 30-32 per cent which is the estimated investment rate needed to have a growth rate above 7.0 per cent per annum. Is it a difficult level to be achieved? Not at all. Had all the national savings been put as investment, this level of growth would have been achieved.
Two facts about Bangladesh economy should be noted here. One, the economy is under-invested and two, it is having an investment of less than that of its savings. The extra savings are finding their way abroad which many of us call as capital flight or illicit money transfer. The more the Bangladesh economy will be linked up with the global economy the more it will be able to use its potential and also the less money will be shifted abroad by its own citizens through illicit ways.
When does money go out illegally? It is when money transfer is restricted. In terms of money transfer abroad, the economy is not that free. Though Taka is convertible in the current account, it is not convertible in the capital account as yet. As a result, many rich people from Bangladesh are taking to illegal routes to take their money abroad no matter how they get the money - whether through corrupt practices or through selling their assets in Bangladesh.
Had Bangladesh been a member of any big free trade bloc or any global economic union, the so-called illicit transfer of money would have been much less. Also, the Bangladeshis are barred from holding legitimate assets or investing in alternative assets like gold, foreign stocks etc. By limiting asset holdings for the people, the policy-makers are driving them to take their extra money outside the country either for concealing their income in safe havens, or for investing aboard in alternative assets.
A change in the policy stance is needed to prevent the rich from taking their money abroad. What harm does it inflict if gold market is opened up for investment purpose? All over the world, investment in bullion, stocks and commodity futures are recognised as areas of investment. In Bangladesh, foreign nationals can invest in our stock market, but the same facility is refused to the country's nationals when it comes to the issue of investment in stocks abroad.
By restricting the Bangladeshi people to access the available global opportunities for investments we are doing not only injustice to them, but also subtly encouraging them to take their money abroad illegally. So long we keep investment opportunities limited for the Bangladeshis only in lands, government-owned saving certificates and in a non-performing stock market, the gross investment level will not go up beyond the present level. The Bangladesh economy also will not be able to achieve a GDP growth rate beyond its present level. In opening up of asset markets including that in gold and commodity futures, Bangladesh should take note of what other countries did, and are doing in this respect.
The writer is Professor of Economics, University of Dhaka.
